What Is A Home Equity Line Of Credit? By Debbie Dragon At Isnare.com Ezine Articles

Anybody who owns a home may qualify for a home equity line of credit. A home equity line of credit can be used for any number of things, including paying for expensive renovations intended for the home, consolidating credit card debt, paying off large loans, or for having cash on hand.

The limit on a home equity line of credit usually depends on how much a house is worth versus the dollar amount of the mortgage(s) currently on the home. The amount, or limit, may be a few thousand dollars, or can be up to several hundred thousand dollars. The total available for a line of credit will all depend on the value of the home.

One of the positive aspects of a home equity line of credit is that it can sit idle until it is needed. For example, if a line of credit is opened for $10,000, and only $2,000 is needed, interest will only be charged on the portion that is being used. The remaining $8,000 of the credit line remains available for future use.

When a home equity line of credit is opened, the lender will likely provide a few different ways to easily use the credit. The borrower will probably receive a checkbook so that checks may be written against the line of credit. Also, the borrower will probably be given a credit card. When the credit card is used, the purchases will apply to the line of credit.

A line of credit must be paid according to the terms of the credit agreement. However, the terms of the agreement will probably require the borrower to send monthly payment to the lender, with a minimum amount due each month. The minimum amount due is usually calculated according to the percentage of the total amount of the loan currently being used. Some lenders may ask for a specific dollar amount as the minimum payment each month instead of a percentage of the loan.

As with regular types of mortgages on homes, the interest charged to the borrower of a home equity line of credit may be able to deduct a certain amount from their yearly federal taxes. Every situation is different, but it is a possibility. A certified public accountant should be able to tell any potential borrower if home equity lines of credit can be beneficial in terms of taxes.

A home equity line of credit is not the same as a credit card because the amount of the loan is backed by the value of a home. With a credit card, if the total amount due is not paid within the terms of the agreement, penalties can be added and a person’s credit score can be affected. When a person defaults on a home equity line of credit, however, the bank can put a lien on the home and even foreclose upon it.

When beginning to look at home equity lines of credit, it can become obvious very early in the search that there are many options. Using a mortgage broker will allow the borrower to compare and contrast the differences between the various loans available. There may be variations in the terms of the loan, the interest rate (and whether or not it’s fixed or variable), and the number of years it can remain open. In addition, different loans will have different fees and closing costs associated with them.

Before a home equity line of credit can be approved, there are several steps that must be completed. If a mortgage broker is used, he or she will explain all of the details on how to obtain and close the loan. One of the first steps is usually filling out an application. After a preliminary approval, an appraisal will probably be done on the home. When the numbers are worked out, more forms must be completed and signed. Finally, when the loan is approved, the borrower may begin using their new line of credit.

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