Mortgage / Equity

Equity
Home Equity
Mortgage
Interest Only Home Equity Line of Credit

There are some myths about interest only home equity lines of credit going around. The biggest of these myths is that you won’t have to pay such a line of credit off.

This is not true with an interest only home equity line of credit you are only obligated to pay the interest on the line of credit. You will still have to pay any money you borrow using the line of credit back.

The big advantage to such a line of credit is that you can choose when you pay the money you’ve borrowed back. This means you can defer payment until you actually have the money available. You only need to come up with the interest each month which will be a smaller amount.

How an Interest Only Line of Credit Works

In a home equity line of credit a lender makes a set amount of credit available to a homeowner. The credit is secured by the equity in the home. The equity is the amount by which the value of the home exceeds the mortgage principal.

The amount of credit is usually a percentage of the equity available usually around 80%. Those with good or excellent credit ratings are usually given higher lines of credit.

The lender makes their money on a line of credit by charging interest on the money used. The advantage to a line of credit is that the homeowner can limit the money taken out to what they actually need. This can limit debt, interest charges and repayment charges.

Be Careful with an Interest Only Home Equity Line of Credit

Individuals who get interest only home equity lines of credit need to be very careful. Unscrupulous lenders will pull a number of tricks that can stick unsuspecting homeowners with much higher line of credit costs than they bargained for.

Always look at the amount of interest charged on a line of credit. Make sure that the interest rate is not very high this can lead to high payments that you can’t pay back.

Make sure that the line of interest is a fixed rate. With a fixed rate a lender can’t raise the lender can’t raise the interest rate later on.

Never get an interest only home equity line of credit with an adjustable rate of interest. This allows the lender to raise the interest rate later on. It means they can greatly increase the amount you have to pay back.

Interest Only Home Equity Line of Credit & Credit Rate

Only those with good or excellent credit ratings will probably be able to get an interest only equity line of credit. Those with bad or poor credit ratings probably won’t be able to get such lines of credit.

Individuals who are seeking a home equity line of credit with an interest only feature should check their credit reports before doing so. That way they can have a chance to clean up their credit and improve their chances of getting such a line of credit.