Mortgage / Equity

Equity
Home Equity
Mortgage
Line of Credit for Home

A line of credit for home use is a tremendous resource that home owners should be taking advantage of.

A line of credit is an agreement that lets a person borrow up to a certain amount of money from a lender. Unlike a loan a line of credit is an open ended agreement that an individual can take advantage of as long as they have credit available. As with a loan interest is charged on a line of credit.  Most people are already familiar with the most popular line of credit – the credit card.

A line of credit for home use is a line of credit that is secured by equity in the home. Equity is the amount by which the value of your home exceeds the debt on it. If your home is worth more than the principal of your mortgage you have equity in your home.

A line of credit for home lets you borrow against that equity anytime you want. A line of credit for home lets you use the equity in your home as a financial resource.

Advantages to a Line of Credit for Home 

The biggest advantage to a line of credit for home use is that the interest rate charged on most home equity lines of credit is considerably lower than interest on other consumer lines of credit. This means that homeowners can borrow money at a much lower rate using a line of credit.

Another advantage is that a line of credit is available for use as long as credit is available. It is also an open ended arrangement which means that more becomes available whenever you pay off all or some of the some of the balance.

Since a line of credit for home is a secured line of credit it might be possible for those with bad or poor credit to get one. Most people who have equity in their homes will be able to get a line of credit for home. Those with bad or credit will pay a higher interest rate on a line of credit for home.

Disadvantages to a Line of Credit for Home

The biggest disadvantage to a line of credit for home is that the amount available is limited to a percentage of the equity in your home. The amount available is determined by the equity available. Most lenders will limit the credit available to a percentage of the equity usually 80%.

Another disadvantage is to a line of credit for home is that you tie up equity and limit your ability to borrow on your home when you use one. Abusing a line of credit for home can quickly eat up all of your equity and increase the debt on your home.

The worst consequence of a line of credit for home is that it can lead to foreclosure. If you borrow more against your home than you can pay you will end up in foreclosure. Foreclosure means that the lender will seize your home and throw you out.

This means that homeowners have to be very careful about how they use a line of credit for home. Generally it should be limited to home related expenses such as repairs, improvements and remodeling.