- What are home equity lines?
Home equity lines are basically a line of credit that is secured against your home.
It can used for home improvements, to pay-off debts, to buy a car or boat, or
whatever you want.
- Length of home equity lines-
Most home equity lines run on a 15 year term. However, depending on the program
alternate terms may be available. Most equity lines are set up the following way:
- Draw Period- you have a set
time period, during which you are allowed to make draws against the line of credit
(usually 5 years, but can be longer). You can pay down your balance and make draws
again and again.
- Closed Period- you can no longer
make draws, and the equity line essentially turns into a second mortgage where you make
equal payments over a set time period (usually 10 years, but can be longer).
- Interest Rates on home equity lines-
home equity lines generally have variable interest rate. The interest rate is
determined by Prime + a "Number". Prime is the federal funds short-term
borrowing rate (currently 7.75%). The "Number" is usually determined by:
- Credit score or credit grade
- Loan amount
- Amount of equity remaining in the home after the
loan.
- Fixing Interest Rates on home equity
lines- some home equity lines have the added feature of fixing your interest
rate (at a pre-set rate) at any time, on a portion or the whole balance of the home equity
line. This can be extremely helpful if interest rates start to rise.
- Advantages of Second Mortgages-
- Open Line of Credit-
have the purchasing power when you need it, for whatever reason.
- Lower monthly payment when
consolidating debt. (Due to a lower interest rate than your debts, and
payments are spread out over time).
- Interest may be tax deductible
(consult your tax advisor)
- Great for home improvement projects- spend as you go and use
only what you need (no minimum balance requirement).
- Get cash out for car, boat, vacation,
etc.,
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