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Maximize Your Home Equity – Part I: Line of Credit

A great way for homeowners to access less expensive borrowing options is through their home equity. Home equity lines of credit are a valuable financial resource for a home owner who is comfortable accessing the available equity in their home to secure credit at rates much lower than unsecured loans. If you are trying to be prepared for ongoing or unexpected expenses like tuition or renovation projects, a line of credit might be right for you.

Understanding Equity

One way equity is established would be as principle payments are applied to the home’s first mortgage. For example, if your home is worth $200,000 and there is a $150,000 mortgage lien on the property, the equity of the home would be $50,000.

What is a Home Equity Line Of Credit?

A Home Equity Line of Credit, also known as a HELOC provides a credit line based on your available equity.

HELOCs have a draw period, which is the specified amount of time in which you can withdraw funds from the line. Typically the draw period is 10 years and during that time most financial institutions will bill you for interest-only payments. When the draw period ends you move into the next phase of the HELOC which is the repayment period.

The repayment period can last 10-20 years, during that time your ability to withdraw funds has ceased and you begin making principle and interest payments.

In most cases, the interest rate is variable and based off of an index such as the prime rate and a margin. A margin is what is either added or subtracted from the index to determine the interest rate.

Advantages of the Home Equity Line of Credit

Here are some advantages to consider:

  • A Line is perfect for unplanned expenses
  • 10 year draw period to access the line
  • Continued access to your established line as you pay down the principal
  • Interest-only payments keep your monthly expenses low

If you’re interested in a HELOC, seek advice from a local community based expert, contact us at Saver’s Bank. We would love to help you through the process and answer any questions you might have.

Be sure to check for Part II on Home Equity Loans soon.

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