Home Equity Lines of Credit

Maybe you have been a homeowner for about 10 years now, and now you have decided, that it is time for improvement and expansion.  Then what is the best way to obtain the funding for home improvement projects ?  Very often a  home equity line of credit is the most feasible and profitable way to access extra cash for home improvement.  Then a couple of other questions comes to your mind:

• How do you obtain home equity credit ?
• What lenders provide home-equity credit ?
• Who qualifies for home-equity created ?

We will answer these questions in our article and hopefully from the information below, you'll be at a more educated consumer.

The basics of a Home Equity Line of Credit (HELOC) are relatively simple to understand, and can present great opportunity for the home owner to capitalize off of the increased value of the property.

All the equity lines of credit are obtained based on the amount of equity you have built into your column.  If you had your mortgage for over 10 years you have established a considerable amount of equity, and should be able to draw on that equity to improve and make repairs on your home.  Fixed rate mortgages or adjustable rate mortgages provide a consumer with the greatest opportunity for building equity in their home. While paying for their home with interest-only loans, 125 loans, and balloon notes, do not help the consumer build equity over a very short time.

Quite often as we shop for mortgage products we don't stop to think about the "down the road" needs we might experience as a homeowner.  That's why today's market of interest-only loans, and 125 loans do not seem to operate in the consumer's favor.  As you make your mortgage payment each month a portion of the payment is diverted to the interest, and the remaining amount is applied to principal; it is through this process that we build “equity” in our home.

Over the course of the life of the home, say 10 years from now, we manage to outgrow our homes, we manage to overuse our homes, and we manage to create a situation that is in need of repair.  If you have a fixed rate mortgage or an adjustable rate mortgage you have managed to build the equity in your home, and you high on the opportunity to open a home-equity line of credit, provided you have also taken care to protect your credit rating.

The amount of equity of establishing your home and your credit rating, will determine the credit limit you receive on a home-equity line of credit.  Your lending institution, your local bank, or for whom ever holds your mortgage will be the entity, where you approach for a home-equity line of credit.  So as long as your payments are up-to-date, your credit is good, and you have a substantial amount of equity in your home, you will qualify for a home-equity loan that is comparable to an open line of credit.

The HELOC is similar in nature to a credit card, where the home owner has a maximum amount he can spend, and will receive monthly bills for the money spent. These monthly bills increase as the available credit decreases, and an interest rate is added to the outstanding balance.

Therefore you withdraw from your line of credit as necessary.  If your loan limit is say $10,000, and you need $4000 for plumbing repairs, you simply write a check drawn on your line of credit account to cover the expense, and you would begin to pay interest on the loan amount of $4000.  Seems to be a very simple way to operate wouldn't you say ?

Many of the leading institutions also think this way, and therefore they created a home-equity line of credit, because it is a benefit for the consumer and it is a benefit for the lending institution.  The consumer has a quick way to draw on the equity in their home, and the late institution has a very good way to make a profit.  So what would be the downside of a home-equity line of credit ?  There doesn't seem to be an obvious one, but you need to understand that there is one significant difference between a HELOC and a credit card, that any home owner must understand, and it is that the credit line is secured by the property. This means that if the money is not repaid then the lender has the right to take possession of the property to recoup the money loaned

The only really downside we have been able to find, is that of the consent of the purchases with the interest only loan, the 125 loan, or any of the many variations from these bases, that does not allow for the building of equity as the mortgage is paid.  Quite often the consumer does not understand or realize the potential danger when purchasing interest-only and 125s.  But the mortgage lender does, or should.  It was for this very reason during the 1920s, at the interest only loan was shelved and taken from the market.  We seem to have forgotten the lessons learned.  For the consumer a home without equity, is a home without protection.  Therefore a home without equity is not a benefit for the consumer.