Since your home is probably your biggest asset, you can put the value of it to work for you with a home equity line of credit.
Banks will usually extend a line of credit to you depending on how much equity you have accumulated in your home. The total credit they will grant you can vary, however, the average is about 60% of your equity. For example, if your home is assessed at $400, 000 you could qualify for a line of credit, to be used for whatever you wish, of $240, 000.
If that $400,000 home, the value of which would be determined by an assessment officer, had an outstanding mortgage of $150,000, then the difference is $250,000. Therefore, if the bank grants 60% of your equity, your line of credit could be $150,000. That percentage may fluctuate depending on other debt you may be carrying.
If you have good credit history and have made all mortgage payments on time, the likelihood of being approved for a line of credit is pretty good. Like any loan, the bank will charge interest, at a rate very similar to what you may be paying on your mortgage. This is typically much, much less than the interest rate on a bank loan and certainly several points lower than a credit card. If you need to borrow money, this is by far the cheapest way to do it.
Once you have borrowed money using your line of credit, you must make a minimum monthly payment, which is generally the amount of interest on your outstanding balance. You can pay it all off if you wish, as long as you make the interest portion of the loan. The line of credit can be paid back when the home is sold.
There are a variety of ways to get the money out of your line of credit, including bank checks and online transfers. Try not to use your line of credit like a credit card – that’s not the best use of your home equity, except in emergencies. Because of the exceptionally low interest rates, the best use of your equity is to make large purchases such as a car, TV, a vacation or home renovation, or to purchase something that will make your money grow.
Home renovations are another reason why people dip into their home equity through a line of credit. It’s the cheapest way, in terms of interest, of borrowing money. It’s like borrowing money from yourself.
Jennifer has been in the Florida real estate business for over 16 years, so before you think about getting a loan you should drop by her site to read further articles that explain Florida home equity lines of credit and bad credit home equity line of credit.