A Home equity line of credit is a loan which is similar to a credit card. These often have a very low interest rate (In most cases even lower than home equity loans). A Home equity lines of credit acts as a form of revolving which your home equity services.

For example,

-You take out a Home Equity Line of credit for $10,000

-You purchase a car for $8,000 with your revolving line of credit.

-You can now only withdrawn $2,000 until you can pay back the $8,000 to increase your limit to $10,000.

*Some lenders might have a minimum withdrawal amount.

There are many types of payment plans a lender may choose to offer you. You will pay interest on what you owe. However once the loan term ends, usually around 10 years, you must pay back the balance owed. If you were to take out an interest only loan, this will be you. If you decide to pay some principal in your repayments you can avoid this. You must pay off the loan when you sell your house even before the loan term ends.

How much can I borrow?

Usually if the amount you wish to borrow is above $25,000, with both loans you can usually borrow up to 80% of what your house's market value minus what you owe. For example if your house is worth $200,000 and you still have a mortgage of $100,000 to pay off, you would use the following calculation:

$200,000 * 0.8 = $160,000

$160,000 - $100,000 = $60,000

You can borrow up to $60,000 dollars in theory. The lender will take other factors into account such as your ability to repay the loan. This will be determined by your income, other financial obligations, debt, and previous credit history.

If you want to borrow below $25,000 you can usually get the loan if you have $25,000 in equity.

Fees:

An Appraisal fee. An independent valuation of what your house is worth is needed to establish how much equity you have in your house. Usually around $200USD.

An application cost. This may not be refunded if your request for credit is denied. May also include property appraisal costs and credit report costs.

Closure costs which may include fees for attorneys, mortgage preparation, and filing property, title insurance, and taxes.

You may also have to pay transaction fees for every time you withdrawn money from your line of credit and possibly an annual membership fee.

This article is owned by http://www.use-your-equity.com and written by John Whiteside. Learn more about real estate investing, and how to create and use the equity in your home! The original article can be found at http://www.use-your-equity.com/heloc.html