Home Equity Line of Credit

What are the options available for a home owner if he is looking to take out another loan and he has no other property to use as collateral? Are some options better than others? Should he just wait until full ownership of the house is transferred under his name before he could pursue other credit options?

Not necessarily. There’s also the option of a home equity line of credit.

What Is Equity?

Before we could discuss what a home equity line of credit is, a thorough knowledge of the term “equity” is needed. Equity is the difference between any home loan that the property owner has against the property and it’s market value.

For example, if the home value is $300,000 and the outstanding mortgage is $ 200,000 – then the home equity amount is $100,000.

What Is A Home Equity Line Of Credit?

A home equity line of credit is an open-ended loan account. It’s like an account from which you could take out money from time to time and pay it back into the line of credit account when it becomes available. All monies drawn from the line of credit incur the cost of interest. Generally speaking the interest rate that the line of credit loan attracts is as low as the original home loan or very close to that rate. A home equity line of credit, by its very name, uses whatever equity you have over a house that have accumulated throughout the years as security for whatever amount you would have to borrow.

It is important to note that most home equity lines of credit are second loans. They are applied for along with a home mortgage loan.

Benefits Of A Home Equity Line Of Credit

A home equity line of credit is a great financial tool available to home owners providing it is used responsibly. There are several key advantages of a home equity line of credit as compared to other financial options available in the market.
 

1. A home equity line of credit allows the borrower to access funds otherwise locked away in their property at the lowest possible interest rate.
    
2. If the purpose of the loan is that of investment , then the interest costs of the line of credit loan would most likely be tax deductible to the borrower.
    
3. A home equity loan can be used instead of a car loan, boat loan, any other personal loan and even as a deposit for the purchase of real-estate.