Using a credit line to borrow
against the equity in your home has become a popular source of
consumer credit. And lenders are offering these home equity
credit lines in a variety of ways.
You will find most loans come
with variable interest rates, some come with attractive low
introductory rates, and a few come with fixed rates. You also
may find most loans have large one-time upfront fees, others
have closing costs, and some have continuing costs, such as
annual fees. You can find loans with large balloon payments at
the end of the loan, and others with no balloons but with higher
monthly payments.
No one loan is right for every homeowner. The challenge, then,
is to contact different lenders, compare options, and select the
home equity credit line best tailored to your needs.
Be sure to review the
home equity contract carefully before you sign it. Do not
hesitate to ask questions about the terms and conditions of your
financing.
How much money can you borrow on a home equity credit line?
Depending on your
creditworthiness (your income, credit rating, etc.) and the
amount of your outstanding debt, home equity lenders may let you
borrow up to 85% of the appraised value of your home minus the
amount you still owe on your first
mortgage. Ask the lender about the length of the home
equity loan, whether there is a minimum withdrawal
requirement when you open your account, and whether there are
minimum or maximum withdrawal requirements after your account is
opened. Inquire how you gain access to your credit line — with
checks, credit cards, or both.
Also, find out if your home
equity plan sets a fixed time — a draw period — when you can
make withdrawals from your account. Once the draw period
expires, you may be able to renew your credit line. If you
cannot, you will not be permitted to borrow additional funds.
Also, in some plans, you may have to pay your full outstanding
balance. In others, you may be able to repay the balance over a
fixed time.
