The Basics of Home Equity Lines

You may be able to take advantage of borrowing against a percentage of your available equity when you have outright ownership or the remaining amount that you owe on the loan is lower than the current value. Two options available will be known either as home equity lines or a home equity type of loan.

Lines of Credit for Home Equity Information

HELOC (Home Equity Lines of Credit) is credit that has been secured in your home that allows you access to a revolving type of credit line. This can be compared to the same system as a credit card. The difference would be you are borrowing money from the equity available from your home. 

Typically you are allowed to draw cash from the HELOC up to 10 years accompanied be a repayment term of 15 years. Home equity lines are commonly used for consolidating high interest rate debt for other loans. Or you could use the credit to fund home improvements or renovations for the purpose of increasing the value potential on the property.

Basic Principles

There is some basic information relating to home equity lines:

Qualifying

For you to qualify for lines of credit, you will have to have an available amount in equity. The money that you still owe on your home will need to be lower than the current value of your house. Your lender will look at aspects such as your monthly debts, income and employment history.

The Index

This is a system known as financial indicators that are used by the banks in order to determine rates for loan products. Many banks use Prime Rate from “The Wall Street Journal”.

The Margin

This is an amount added onto the index in order to provide an interest rate on your lines of credit for home equity.

The Limit

This is an amount that the lender will determine by using a calculation on your available home equity.

Draw Period

This is the amount of time you will be given on which to repay the credit line you have used. This period may vary from lender to lender; typically the period will be no more than 10 years.

The Interest

Any amount of cash that you borrow from your credit lines will be charged with interest. Home equity lines will have a variation in interest rates and the interest rate can change from one month to another. It is important to know that your lender is allowed to change you credit lines by decreasing the amount on funds available at their discretion.

When using home equity lines in order to pay off or consolidate your other debts. It is advisable not to start up new debt on these accounts or open new accounts. This can relate to a difficulty in paying off all your accumulated debts which may include your credit from your home equity line. This may result in the risk of losing your home as well as negative effects to your existing credit ratings.