A home equity line of credit is an excellent way to access money that is just sitting untapped in the form of equity of your home.
A bank or financial institution will consider granting you a line of credit if you have built up a certain amount of equity in your home. The amount that the bank will extend to you is dependent on the amount of equity you have. The maximum allowable is 60% that value. Say your home is worth $400, 000, which will likely be determined by an assessment ordered by the bank. You may qualify for 60% of that, which is $240, 000.
If you still owe money on your home, that amount will be deducted from the assessed value and you’d get 60% of the difference. Take that $400,000 home and say you still owe $150, 000 on the mortgage. The difference is $250,000, so the bank would grant you a $150,000 line of credit. However, if you have a high debt load in other areas, you may qualify for less.
If you have good credit history and have made all mortgage payments on time, the likelihood of being approved for a line of credit is pretty good. Like any loan, the bank will charge interest, at a rate very similar to what you may be paying on your mortgage. This is typically much, much less than the interest rate on a bank loan and certainly several points lower than a credit card. If you need to borrow money, this is by far the cheapest way to do it.
Once you have borrowed money using your line of credit, you must make a minimum monthly payment, which is generally the amount of interest on your outstanding balance. You can pay it all off if you wish, as long as you make the interest portion of the loan. The line of credit can be paid back when the home is sold.
You can access your equity by check or by transferring between accounts. However, the smart way to use a home equity line of credit is to save it for major purchases. Should you get into financial trouble, your line of credit can be used as emergency cash. However, you can purchase a vehicle, take an amazing vacation or make your equity work for you by purchasing a revenue property, vacation home or mutual funds and other types of investments.
You may wish to purchase a second home, a revenue property, mutual funds or other investments. Rather than take out a loan for a big ticket item such as a vehicle or even a once-in-a-lifetime vacation, using your equity line is the preferred way of borrowing money because the interest rates are so cheap.
Jennifer has been in the Florida real estate business for more than 20 years, so before you look about getting a loan you should swing by her page to read further articles that explain Florida home equity line of credit and Florida HELOC rates.
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