10 Things To Know About Equity Home Line Credit

Introduction

Home equity line of credit or HELOC is a flexible type of loan where the borrower puts up their home as collateral. The manner in which it works is that the lender agrees to a certain amount of credit and a duration in which it can be utilised called a draw period. The money is not given to the borrower all at once rather they can take from it when needed. After the draw period has ended the borrower can either renew their home equity line of credit or they can start the repayment process. In this article we will impart ten valuable pieces of information in relation to this loan, hopefully aiding in the better understanding of the home equity line of credit loan.

Step 1

Shop around and research the various different companies that offer the home equity line of credit loan. This way you will find one that best suits your needs and personal wishes. Perhaps asking friends and family for advice, especially individuals who they themselves have a home equity loan will shed valuable insight on it for you.

Step 2

At the outset  decide if this is the type of loan for you. Home equity line of credit is used sparely or solely for imperative reasons due to the subject of collateral being your place of residence. People place great importance upon their house and it is best to think thoroughly before embarking upon the home equity line of credit, as normally failure to repay your loan can result in foreclosure of your house.

Step 3

All home equity line of credit loans have a specific duration for drawing out fees and a term for repayment. It is a beneficial idea to become fully aware of both these time periods. The average length of the drawing period for the loan is ten years and the repayment period can range five to ten years depending on your borrower’s terms.

Step 4

Carefully read the loan agreement and its terms and conditions so you are well aware of your responsibilities and commitments when it comes to your home equity line of credit.

Step 5

The interest rate for home equity lines of credit is variable rather than fixed. It is normally based on the prime rate, to this many banks generally add a margin. Interest rates will vary in accordance to the prime rate, which can normally be viewed in newspapers. The prime rate is only one particular interest index that may be applied, it will vary bank to bank. It is important to discover what index they use to get an idea of the interest for your loan.

Step 6

You have the option of making interest only payments on your home equity line of credit loan. Take advantage of this feature to lessen the amount owing and sensibly reduce your debt.

Step 7

Make sure when you enter upon the loan that you have a viable plan on how to repay it. This will ensue for less stress and anxiety in the future when you come to paying it back.

Step 8

The amount that the lender decides to loan varies from bank to bank but there is an established method. The lender takes a percentage of your homes appraised value. They then subtract your existing mortgage from your houses value and the sum they end up with is the total amount of your home equity line of credit.

Step 9

Find out if there are any additional costs to your home equity line of credit. These could be a property appraisal to discover the value of your home, which aids in the bank deciding upon how much they will loan you. Also sometimes an application fee may apply which may or not be refunded.

Step 10

Be aware that the lender can freeze or reduce your home equity line of credit if circumstances change. This could be in the form of a decrease in the value of your home or the lender may decide that you are unable to make repayments due to pecuniary changes. If this happens, first try to resolve it with your lender if this fails shop around for another one.

Tips

1. Research and talk to friends and family, in the effort to find a home equity line of credit that is best suited to your needs.
2. Become aware of the details. Make sure you know about the drawing and repayment period, and the various other costs that may apply.
3. Discover the index that your bank uses to determine their interest rates.
4. Before embarking upon this loan make sure you have a rough idea on how you will repay it.

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