Jul 15, 2013

Home Equity Lines of Credit

Have you ever looked around your home and felt it could use a little update? Perhaps the kitchen could needs new granite counter tops or maybe the bathroom is too small or even worse, the den is still sporting that shag carpeting from the 1970’s. If this sounds familiar to you but you are wondering how you might pay for the remodeling, a home equity line of credit might be what you are looking for.

What Are Home Equity Lines of Credit?

Simply put, a home equity line of credit is a line of credit secured by your home. Most homes have equity – meaning they are worth more than what you owe on them. A portion of the difference between the value of your home and the outstanding mortgage amount is the equity available to you. As opposed to receiving one lump sum of cash as you would in a home equity loan, you will have access to a line of credit, similar to a credit card.

First, your mortgage company will establish a total available loan balance from which you can draw. You can draw the amount you need or want up to the total available. For example, if you receive a home equity line of credit of $50,000.00, you can take as little as the minimum withdrawal amount and all the way up to the entire $50,000.00 or make several withdrawals as needed.

Home equity lines of credit use a variable interest rate which is often based on the current prime interest rates.

What Are Home Equity Lines of Credit Used For?

There are several uses for a home equity line of credit. Many people use them to update or renovate their homes. From a new backyard and swimming pool to updated wiring, this type of line of credit is a good option for covering the costs. In addition, some individuals use home equity lines of credit to pay off or consolidate debt from credit cards and other sources.

Another use you can use a home equity line of credit for is college tuition. This is a good option as the money will be available when tuition comes due twice a year as opposed to receiving a lump sum.

How Do Home Equity Lines of Credit Benefit You?

One benefit of home equity lines of credit is that the interest may be tax deductible. Your tax advisor can provide insight into your personal circumstances. In general, IRS guidelines allow  interest as a tax deduction as long as your line of credit is less than $50,000.00 for an individual and $100,000.00 for a couple filing jointly. If you use a home equity line of credit for any other purpose than home improvements, the interest is not tax deductible.

A second benefit of home equity lines of credit are the repayment options it affords you. You may pay a small amount of principal plus interest, which may help your monthly finances if you find yourself in a rough spot.

What Is the Easiest Way to Obtain Home Equity Lines Of Credit?

Having a good payment history is a necessity when it comes to obtaining a home equity line of credit. Like any home equity loan, certain criteria must be met before a bank or mortgage leader will grant you a line of credit.

If possible, review your credit score and clean up any inaccuracies. Be sure all of your payments are on time and above the minimum payment to improve your overall credit standings.  Your debt does not need to be entirely erased, however, all of your credit accounts should be current and in good standing. Secondly, ensure you have a solid employment history. Typically, lenders like to see at least two years of employment at your present company.

Once you feel you have your financial house in order, contact your current mortgage holder or the bank from which you obtained your original loan. Having a personal relationship with your banker or mortgage lender can aid in obtaining the home equity line of credit you are looking for. A local bank has a personal stake in the community, and that might make it easier for you when going through the loan process.

Home equity lines of credit can be a ready source of money for home improvement projects, both large and small. Whether you need a new roof, or plan to finish your basement, a home equity line of credit can help you increase the current value of your property. With a little planning and research, you should be able to find the right home equity line of credit for you.

This post was written by Holly Wolf of Conestoga Bank, a community bank servicing Philadelphia and its surrounding regions for over 120 years. This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material.

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