Everything You Need To Know About A Home Equity Credit Line?

It just might be the coolest thing since sliced bread. Because having a home equity credit line is like having a high limit credit card but with one big exception. The interest is tax deductible. (consult your tax advisor)

You can use your home equity credit line for just about anything; debt consolidation, paying for school, home improvements, financing vehicles, etc. But just like a credit card it must be respected. If you’re not careful, you can end spending all of your equity and have nothing to show for it.

Here’s how home equity credit lines work:

Once your loan has been funded you will receive a credit card or checks or in some cases both. These will be used at your discretion to pay for or payoff items.

 Depending on your credit, you can have access to all of the equity in your home. You will still need to qualify for the payments. In some cases with great credit and large disposable incomes you may qualify for up to 100% of the equity in your home.

If a variable loan is not to your tastes you can always consider a fixed rate 2nd mortgage.

Interest rates are normally tied to the prime interest rate. Interest rates are determined on credit scores and how much equity you are gaining access to. For Example: Let’s assume you have good credit. If you wanted a home equity credit line to 70% of the value of your home your interest rate might be prime only. To 80% of the value of your home, it might be prime interest plus 1%. To 90% of the value of your home it might be prime interest plus 4%. To 100% of the value of your home it might be prime interest plus 8%.

Home equity lines of credit are typically fully adjustable. Meaning they can rise and fall at any point during the loan. Also there is normally not a maximum they can rise or fall.

Many lines of credit offer teaser or introductory rates. In some cases these teaser rates may be as low as 1.99% for the first 3 to 6 months. 

Most credit lines are interest only for up to the first five years and can sometimes be extended another five years of interest only payments.

A home equity credit line can be either a first or a second mortgage.

The repayment terms on a line of credit can be anywhere from 15 to 25 years. With most falling in the 20 to 25 year term.

The lowest credit score a lender will allow for an equity credit line that I have ever seen is a 620. If you have no idea what your credit score is you can order a credit report you should get a copy of it.  

The Federal Reserve controls the prime interest rate.