Your home is likely your greatest asset and you can put its value to good use with a home equity line of credit.
The maximum credit that you can access is dependent on how valuable your home is. Banks will extend a percentage of the equity that you have accumulated. As an example, let’s take a home worth $400, 000. If the title is clear, the bank may grant you 50% of that equity, which would in this case be $240, 000 to be used in any way you see fit.
If there is still an outstanding balance on your mortgage, they will give you 60% of the equity of the assessed value minus the balance on your mortgage. So, take that $400,000 home, with $150,000 still owing on the mortgage. Your equity is $250, 000 and 60% of that would be $150,000. In some cases, if you have other debt, that percentage may be lower.
As long as you’ve faithfully made all your mortgage payments and/or your credit is in good standing, you should expect your line of credit to be approved. It is still considered a loan, however, the interest rate charged on a home equity line of credit is as low as your mortgage payment, or prime plus a few points. It is much lower than a regular bank loan and infinitely lower than interest charged by credit card companies. It’s the cheapest way to borrow money.
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.
Many people use their equity as a down payment on a second home or a revenue property. Some will flip their equity into an investment funds or stock market. It’s like borrowing money from yourself at the lowest possible interest rates.
Jennifer has been in the Florida real estate field for over 16 years, so before you look about taking out a loan you should drop by her site to read further articles that explain Florida home equity lines of credit and bad credit home equity line of credit.
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