Using the Equity in Your Home

By Debbie Wilson Columnist

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There are many reasons why a home equity line of credit makes sense: you can qualify for a sizable amount of credit; you can use the money how you see fit; and you can obtain a fairly low interest rate. But before you leap into putting your home on the line, carefully consider what your borrowing needs truly are and what financial risk youre willing to take to meet those needs.


Home Equity Line of Credit

A home equity line of credit is basically a revolving credit limit whereby your home serves as collateral. A mortgage lender or banker will approve you for a specified amount, determined by your homes appraised value less the balance owing on your existing mortgage. In addition to this potentially approved credit amount, lenders will take into account your ability to repay. This entails reviewing your current income and income potential, your debt situation, and your credit history.

Types of Home Equity Lines of Credit

There are many different types of home equity plans, each with its own set of restrictions, limitations, and payback policies. For instance, many plans allow you to borrow money for a fixed period, such as 10 years. Other home equity plans impose limitations on how you can use the line of credit. You may be required to borrow minimum amounts at each draw, or make minimum pre-determined draws per year. You may even be forced to draw money in the form of an initial advance at the time the line of credit is approved.

It only makes sense that you do your research before taking out that home equity line of credit, especially considering the fact that your home is probably your most valuable asset. Using such a line of credit for major expenses, such as education, medical bills, or home improvements may be a great way to cover your financial obligations by making your home work for you.

About the Author
Debbie Wilson owns and operates a lakeside resort. Her previous experience includes profitability consulting for a national healthcare company. Debbie holds a B.A. in Business Management with a minor in Physical Education.

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