Home Equity Line of Credit: How to Repay Yourself what you Paid Yourself

By Emily Kerr
LoanPage Columnist

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A home equity line of credit is a home loan made from your home loan borrowing against the equity in your home. It's money to do big things with remodels, large purchases, financing education but it's still a loan. It's a loan out of your home loan.

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What is a Home Equity Line of Credit?

A home equity line of credit is a credit line available to you based on the equity in your home.

The credit limit on a home equity line of credit is determined by taking a percentage of the home's value and subtracting from that the balance owed on the mortgage. So on a home appraised at $200,000, 75 percent equals $150,000. That amount minus the $80,000 still owed on the original mortgage leaves $70,000 available for a home equity line of credit.

How Do I Repay a Home Equity Line of Credit?

Before you sign the papers for a HELOC or pay the fees associated with it, consider how you'll pay it back.

Some HELOC plans' minimum payments cover interest on the loan and a portion of principal but not enough to repay the principal by the end of the loan term. Other plans are interest-only at the end of the loan term you still owe the entire amount you borrowed. Interest rates may be variable, and your monthly rates may fluctuate.

No matter what repayment plan you choose, the entire amount has to be repaid by the end of the loan term. Sometimes that means making a balloon payment, paying the remaining amount due all at once, refinancing with the lender or with another lender to finance the repayment of the home equity line of credit. If you are unable to make the balloon payment, you could lose your home. If you sell your home, you'll need to pay off the HELOC in full.

A home equity line of credit can finance improvements in your home and out of it you just need to make sure you can repay that loan and keep the roof over your head.

Sources:

The Federal Reserve
Chicago Tribune

About the Author

Emily Kerr is a freelance writer with over 350 articles in print. She writes about topics from home construction to home loans, technology to education, people to plants to pets and everything in between.

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