Getting The Most Out Of Your Home Equity Line Of Credit

A home is the most important and valuable asset that a person has. Even more valuable is one’s equity in their home. When used to secure a home equity line of credit, it can provide the funds for many important family needs such as education, paying medical bills, or even major home improvement plans, rather than to meet day-to-day expenses. It’s very important you work with a reputable loan provider since they can liquidate your home if you default on the loan repayment. A Line of Credit is an important step and Refinanceiit.com can help you get the home equity line of credit that works best for you.

How a home equity loan works

This loan basically establishes a line of credit based on the value of the equity in your home. Generally, when a mortgage loan is taken out the mortgage amount is determined by the value of your home and a certain per cent of that valued is provided in the mortgage. This generally ranges from 70% to 75% of the appraised value. This can vary up or down. The difference is considered the equity in the home. In some cases, the difference is also covered with a second loan like a second mortgage. The home serves as the collateral for either or both loans. Mortgage loans generally extend for many years. When a house is mortgaged, it cannot be mortgaged again unless the ongoing mortgage loan is paid off. Since historically most homes have appreciated in value over time, the result is the equity value in the home grows, often substantially.

This equity can also be used as collateral and the homeowner can borrow additional funds using their collateral as security. The current value of the home determines how much can be borrowed. Usually a short, updated appraisal is needed before making this loan. The lender provides an additional loan by using this “extra” potential available in the home. This is how Home Equity Lines of Credit (HELOC) work. It’s simple to apply and the place to start is right here.

Applying for an Equity Loan

A lender who provides a HELOC determines the equity loan amount by deducting the sum of money still owed on the mortgage from a new valuation amount that is obtained by a current appraisal. If the new appraisal decides your home is worth, say $100,000, and you still need to pay $75,000 to your existing mortgage lender, your home equity amount would be $100,000 - $75,000 = $25,000. Depending on a number of variables, a percentage of this amount becomes the loan amount. Generally it’s somewhere between 50% and 75%. Another important factor deciding the maximum loan amount is your credit history and FICO score. The better your credit ratings, the better are your chances of getting a larger percentage of your equity value.

Differences between a Home Equity Loan (HEL) & HELOC

The difference between a HEL (Home Equity Loans) and HELOC (Home Equity Line of Credit) is a HEL is a loan for a fixed amount, also based on your home’s equity, over a fixed period of time (term). The loan amount of a HEL is determined much the same way as a HELOC. A HELOC loan (Home Equity Line of Credit) is which you can borrow flexible or varying amounts as needed up to the total of what’s been approved as your HELOC loan. The funds are often paid back in the same way and not a fixed monthly payment over a fixed period of time. A HELOC, depending on the individual loan, can be structured so that at then of a certain period of time, any outstanding balance is converted to a fixed loan. Both HELOC Loans and HEL loans have their advantages and disadvantages. Our network’s home financing specialists can help you decide which one works best for you. If you have poor credit and can’t qualify, it’s recommended to try a credit repair program and then apply for your home equity line of credit.

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