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.
The maximum credit that you can access is dependent on how valuable your home is. Banks will extend a percentage of the equity that you have accumulated. As an example, let’s take a home worth $400, 000. If the title is clear, the bank may grant you 50% of that equity, which would in this case be $240, 000 to be used in any way you see fit.
If you still owe money on your home, that amount will be deducted from the assessed value and you’d get 60% of the difference. Take that $400,000 home and say you still owe $150, 000 on the mortgage. The difference is $250,000, so the bank would grant you a $150,000 line of credit. However, if you have a high debt load in other areas, you may qualify for less.
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 started taking money out of your line of credit, you have to start making payments. You don’t have to pay the principal if you don’t want to. You can leave the principle untouched for as long as you own the home if you wish. All you need to do is make the monthly interest payments. Whatever the interest is on your remaining balance, that is all that needs to be paid for as long as you own the home.
The banks may issue checks to you and you can transfer funds form your line of credit into your bank account either in person or online. It is not advisable to use your line of credit as you would a credit card to make small purchases. While many people access their line of credit for emergencies or to pay the bills during temporary hardship, the best use of your home equity is for a huge expense such as a car, RV or boat or to purchase something that will make you more money.
You may wish to purchase a second home, a revenue property, mutual funds or other investments. Rather than take out a loan for a big ticket item such as a vehicle or even a once-in-a-lifetime vacation, using your equity line is the preferred way of borrowing money because the interest rates are so cheap.
Jennifer has been in the Florida real estate field for more than 15 years, so before you think about getting a loan you should stop by her site to read further articles that explain what a home equity line of credit is and HELOC vs home equity loans.