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Sourcing a Credit Line from the Equity in Your Home

February 25, 2013

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In a Home equity line of credit or HELOC as it is popularly known, a home owner is extended a credit limit based on the collateral security of his home. The lender approves a fixed credit limit that the borrower can use as he pleases, on paying a fixed or variable rate of interest. The entire loan amount needs to be repaid before the expiry of the loan that may be fixed for a mutually agreed duration running from ten to twenty years.

How a HELOC operates

Money gift. Title LoansYou will be offered a choice of  fixed or variable interest rates. Usually people prefer the fixed rates as they are more comfortable knowing that the rate will remain unchanged throughout the loan. Others get attracted by the lower variable rates, but these rates may fluctuate widely depending on market behavior.

The value of your home will be professionally assessed and the lender will sanction an amount between 70% to 80% of the commercial value of the home, as a credit line. Though the loan limit or ceiling is fixed the borrower is at liberty to withdraw money in stages as and when he is in need of funding, taking care not to exceed the upper loan limit. Borrowers with a good repayment track record can get repayments approved for periods up to twenty years.

Locating the ideal HELOC lender and the best deals

The internet is a good place to begin your search, and there are many popular home equity lending sites that give you comparative analyses of the benefits of various schemes promoted by prominent lenders with information on interest rates (both fixed and variable), duration of repayments and other benefits. The internet also makes it easier to find a HELOC that can be customized to your individual needs, and which suits your budget.

What you must ensure before signing the HELOC agreement

  • Go through the agreement if only to understand what is being offered to you, and what you can expect as you commit yourself to a prolonged credit relationship with the lender.
  • Don’t go by the figure that expresses the interest rate, determine the Annual Percentage Rate or APR which gives you a better idea what your repayment burden will be.
  • Ensure there are no hidden fees and get the lender to spell out clearly what he expects you to pay down the road. Ask about the loan appraising expenses, loan application fee and the lawyer’s expenses. You should also know something about the expenses connected to your title search, title insurance, mortgage processing and registration, and your expected property insurance premium and taxes. You can save a lot of money as many companies waive some of these costs to a reasonable extent.
  • Check out your repayment choices and favor the method that does not strain your income.
  • Ensure there are no restrictive clauses that may go against your interests, and whether there are options for refinancing or renewing balances.

Merits and Demerits of a HELOC

The biggest plus point is its flexibility that gives you substantially bigger sums that can be utilized according to your personal needs. The major drawback is that a damaged credit report will make you ineligible for such a loan. The interest rate can burden loan repayment if you don’t stick to the payment schedule, and default is hardly an option because you will lose your home.

Are there other alternatives to the HELOC?

The fast car title loan is a good clean option, though it will not match the HELOC amount. The pink slip loan leniently accommodates any bad credit history. These auto collateral loans deliver instant cash with loan approvals touching 60% of your vehicle’s worth. Auto equity loans offered by reputed companies levy reasonable interest rates below 25% APR, and are cushioned by easy repayment schedules that will not strain the borrower’s known sources of income. If you possess a loan free pink slip to your car and you can rustle up residence, identity and income proofs you are well on your way to securing a pawn car title loan within fifteen minutes.

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