Friday, February 4, 2011

Home Equity Line of Credit

A home equity line of credit is a pretty tasty option for those needing money for any reason and have a substantial amount of equity in the home mortgage. It's tasty because in many cases it is a low interest loan, pretty much in line with mortgages and the lending agreement can be used for any reason, no questions asked. Vacations, a new car, a new roof, college expenses or starting a new business are only a few of the reason a person might open a home equity line of credit, also known as a HELOC in financial circles. Because the lending agreement is based on actual collateral, the interest rate will be much lower than an unsecured loan, usually called a signature loan or promissory note. It is a lending agreement most financial experts can feel good about and many encourage its use, but only for highly legitimate reasons. The sources for getting a home equity line of credit are varied because much of the viability for getting such a loan depends on the borrower's borrowing history and debt to income ratio.


There are some limitations to a home equity line of credit such as the percentage of the equity that qualifies for a lending agreement of this type. For example, some lenders will limit borrowed money of this type to fifty or seventy five percent of the equity actually accrued over the years. Others may offer a percentage of the appraised value of the house minus what is owed. In either case this means that unless this is understood, some big disappointments could be in store for the borrower when approaching a lender. "He that hath my commandments and keepeth them, he it is that loveth me and he that loveth me shall be loved of my Father and I will love him and will manifest myself to him."

There are some obstacles to overcome when applying for a home equity line of credit. For example, a person's borrowing history score or debt to income ratio can quickly derail a lending agreement with a bank. A bank is very conservative because they deal with depositors' money and as such a higher than average borrowing history is required for their loans, even ones such as a HELOC which is secured by real estate. But even if a person's credit score is above 640, a number of loans already secured by the customer and not enough income to fully justify all those borrowing agreements will sink the deal with a conservative bank. On the other hand, credit unions aren't quite a prone to using a template kind of approach with every potential borrower, taking a little more holistic approach to each individual or couple. A credit union's are still high, but may be a little friendlier in terms of being interested in each person's story.

Of course, even a cu may say no to a home equity line of credit for a borrower and the option becomes a lending company rather than a bank or cu. In this case, a loan company is funded by investors who are willing to take more risk for the sake of high profits. In other words, a lower credit score or income to debt ratio can be trumped by much higher interest rates. Less trust in the borrower means the borrowed money costs more. Then the question becomes whether a HELOC is really worth the expense. After all, if a consumer takes out a HELOC for much of the equity in the house and spends all the available cash, the reality is stark: a person must start over again to pare down the mortgage. Ugh!

Most of the time, these kinds of lending agreements have variable interest rate like a credit card. A home equity line of credit usually involved being given a debit card of checks on which to write for purchases coming out of the approved account. The interest rate paid for a bank or credit union lending agreement is most likely figured on the prime rate published in some well known newspaper such as the Wall Street Journal. The interest rate will be something like the prime rate plus 2 percentage points. For a loan company, the interest rate is very likely to be much higher than the prime plus 2 equation and so the Wall Street Journal isn't even mentioned at that office! Just like getting a mortgage, there will be costs in getting a HELOC such as an appraisal of a person's house on which the loan is based, application fees, points, which are 1 percent of the value of the loan and closing costs which might include attorney fees and title insurance as well as taxes. A home equity line of credit may sound like a good idea, and it really is the best of any lending options except a fixed rate mortgage or a low income loan from the government, but the transaction will still be costly, especially if a person uses only a little of the money available which then become very expensive borrowed money!

All of us are told every time the TV is turned on that life just isn't full without certain products and that we actually deserve to have the newest and brightest and shiniest and fastest. Making the want and the envy and the lust for the newest fashion or computer or car or boat or the best college or the finest hotel room with another purchase always ends up kind of weird. After we get what we think we have to have, the pursuit soon turns to the possession just being another car, just being another computer, just being another rented hotel room. And so drinking the saltwater causes another pursuit to begin and the beat goes on. Jesus once declared that if anyone drinks of His essence, His love, His commandments, His abundant life, His death burial and resurrection that that person would never thirst again.

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