Introduction
You might want to consider a home equity line of credit if you need the flexibility of access to funds for large expenses and have available equity in your home and would like to borrow against it. You can also use a home equity line of credit for debt consulation. The following are some important tips about a home equity line of credit.
Why You Need A Line Of Credit
A home equity line of credit is a type of credit whereby your home acts as a form of security. For most people, the home is most probably their most precious asset, and for that reason, people prefer to use their home equity lines of credit for very necessary needs such as home improvements, education, or hospital bills, as opposed to using them for their basic daily expenses.
Once you have a line of credit you will be commended for a certain amount of credit. Most creditors usually fix the credit limit by taking a specific percentage of the home’s assessed value and deducting it from the remainder owed on the current mortgage.
As soon as you qualify for a line of credit, you will be in a position to have access to your credit whenever you want, so long as you have not reached the limit. Usually, you will make use of specific checks. In other arrangements, you may use credit cards or other ways to borrow the money.
The moment you make the decision to apply for a line of credit, you have to carefully search for a plan that best suits your specific needs. You will need to read the credit plan keenly, and scrutinize the terms and conditions, considering issues such as the annual percentage rate and the costs to be incurred when setting up the plan.
There are some expenses involved when establishing a home equity line of credit. These costs are actually related to those involved when getting a mortgage. They include an application fee (which is refundable if you are turned down), a property appraisal fee, upfront costs, closing charges, taxes and property insurance.
When the value of your home declines greatly, or when the creditor is assured that you will not be able to pay your dues due to your financial situation, then the credit agreement may allow the creditor to halt or decrease your line of credit. If this takes place, it is advisable to talk to your creditor and find out if there is anything you can do to fix the problem. Alternatively, you can search for another creditor if your current one refuses to come to an agreement with you.
Tips and comments
One important advantage of having a home equity line of credit is that you will not have to make payments for the interest that was accumulated during that specific month. It is important to note that it normally comes with a fluctuating rate, and thus the interest owed will not be the same every month.
Another important thing to keep in mind is that, once the period where you are making payments for interest is over, the repayment period begins. This repayment phase will utilize the borrower’s credit charges for the rest of the loan term. In addition to that, it is during this repayment period that both interest and principal costs will need to be paid. Therefore, you may need to calculate the monthly costs once again on your home equity line of credit.
