Finding a Better Home Equity Line of Credit

No matter what the economic climate, expenses, whether expected or unexpected (car, vacation, home renovation, debt consolidation), can make it difficult to make ends meet. Common wisdom suggests saving three months of living expense for an emergency. That can be difficult to do; that’s why advises that it’s important to have access to a rainy day fund.

When it comes to borrowing and getting the most for the least, more and more property owners opt for a home equity line of credit (HELOC). A HELOC allows you to re-borrow a portion of the equity you have built up in your home. Because it’s a line of credit, you can use it whenever and however you like.

HELOCs are available to homeowners with at least 20% equity. Other qualifications include a steady income, good credit score, marketable property, etc.

A home equity line of credit gives you access to a maximum of 65% of your home’s value. At the same time, your HELOC and home balance cannot equal more than 80% of your home’s value.

For example, if the value of your home is $500,000 and your outstanding mortgage balance is $175,000, your maximum loan-to-value ratio at 80% (value x 80%) is $400,000.

Then you need to subtract the balance of your mortgage to get your total allowable HELOC amount. In this case ($400,000 – $175,000), the maximum amount of equity you could tap into your home is $225,000.

Keep in mind that the HELOC cannot exceed 65% of your home’s value; just divide the HELOC amount with the value of your home. In this example, the HELOC only amounts to 45% of the home’s value.

HELOC Benefits

That said, not all home equity loans are created equal. It’s important to compare the different home equity loan products provided by the big banks and other lending institutions.

For example, HELOC interest rates can vary significantly between the different banks and mortgage lending institutions. One bank might provide a variable interest rate of Prime + 0.50, while another is Prime + 1.0. In addition, some will only hold a particular rate for 30, 60, 90, or 120 days.

Some financial lending institutions will also allow you to sub-divide a HELOC into smaller portions through sub-accounts. You can also sometimes convert a portion of the outstanding HELOC funds to a fixed rate.

Despite the differences in home equity lines of credit, they all share the same benefits:

With a home equity line of credit, a homeowner has a predetermined spending limit they can access whenever they want, and interest is only charged on the amount borrowed.
The interest rate on a HELOC, while higher than a first mortgage, is still one of the cheapest rates for an open loan.
On top of that, you can choose a repayment method that works best for you. Whether you pay the minimum interest-only payment on the variable rate or choose to pay more, it’s entirely up to you.
If you are interested in refinancing your home mortgage or even want to know what your options are, contact or apply online and a mortgage specialist will help set up an appointment at your earliest convenience. Your independent, licensed, agent will evaluate your current financial situation and decide which products are best for you.


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