Overview
A home equity line of credit is different from
a regular home equity loan or mortgage loan. With a home equity line of
credit, the borrower is not given the entire sum up front, but instead
has a line of credit, and can borrow only what they need. You pay back
only what you use, plus interest. Thus, it may turn out to be cheaper
than a regular loan. Regular mortgage loans require you to pay interest
on the entire principal, whereas on a home equity line of credit you pay
only for the amount you have used.
Another important difference is that you will be charged a variable
rate based on an index, such as the prime rate, rather than a fixed
interest rate. Be aware that not all lenders will figure the margin the
same way (the margin is the gap between the prime rate and the interest
rate you actually pay). Lenders do not tend to volunteer this
information so you need to ask them about it before you take out the
loan.
How It Works
A home equity line of credit is another form of loan that is secured
by collateral and in this case it is your home. This means that if you
do not repay the loan the lender may foreclose on your home. For this
reason, lenders typically expect you to maintain a certain amount of
equity on your home before they are willing to provide a home equity
line of credit.
Benefits
There are many possible benefits of a home equity line of credit
compared to mortgage loans. The primary benefit is if you need ready
cash for a project, such as remodeling your house, this can be a way to
get cash on better terms than you would get for an unsecured loan.
Cost/Pricing
The cost of the home equity line of credit is spelled out in the
terms of the loan. These terms will vary from lender to lender.
Remember, a home equity line of credit is no different from other
mortgage loans that are secured by placing your property as collateral.
Timing
Perform a thorough research on home equity line of credit when you
have decided to take the loan. You should start the process as soon as
possible to get the best terms. Even if you are not ready to commit to
the home equity line of credit, verify the facts so that you know your
options.
Companies/Industries
There are many companies and brokers who can help you figure out if a
home equity line of credit is right for you. Local banks, nationalized
banks and institutions specializing in local lending offer home equity
line of credit. If you get a variety of quotes from different lenders,
you can base your selection primarily on who can offer you the best
terms for your mortgage loans. Chase and Wells Fargo are some companies
that offer home equity line of credit, loans, and credit cards.
