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A Home Equity Line of Credit can be a useful source of inexpensive credit for a homeowner. With a home equity line of credit, the borrower can access the amount of money they need simply by writing a check against the line of credit account held by the lending institution. The advantage of writing a check against a line of credit makes this approach more flexible than home equity loans.
The amount of equity in a home is determined by taking the current market value of the home and subtracting all of the outstanding loans that are using the home as collateral. So if a home is worth $300,000 and the remaining principal on a loan is $100,000, then the equity in the home is $200,000.
The lending institution will usually allow the borrower to take out a loan up to 80% of the equity in a home. In this example, the borrower could get a loan as large as $200,000 x 80% or $160,000 if their annual income qualifies them for a home equity line of credit that large. Most home equity plans set a fixed time, known as a draw period, when the borrower can make withdrawals from their account.
One advantage of a home equity line of credit is that the interest portion of the payment is usually tax deductible. Keep in mind, however, that a home equity line of credit is a secured loan using your home as collateral. If loan payments are not made foreclosure is possible.
Other forms of this term include - home equity lines of credit |
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