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[C888]Compare Home Equity Line Of Credit

by Dan Lewis, Dan

Home Equity Lines of Credit – Be Careful

A home equity line of credit provides a homeowner with the liquid equivalent of a hard asset. Real estate has returned excellent rates of appreciation recently. This means the value of homes has risen, creating new wealth for homeowners. The problem, of course, is the wealth is locked into the home and difficult to use. After all, you cannot use a door to pay the bills. To answer this dilemma, lenders have come up with home equity lines of credit.

A home equity line of credit is exactly what it claims to be. Programs vary, but a lender essentially issues you a credit line roughly equal to the equity you have in your home. If you have $100,000 in equity, you get a $100,000 line you can write checks off of and so on. On top of this, the equity line is usually issued with very reasonable interest rates at or just above traditional mortgages. Throw in the ability to claim a tax deduction on the interest paid, and the popularity of home equity lines of credit becomes clear.

Americans are infamous for abusing credit cards. Most Americans carry thousands upon thousands of dollars in credit card debt. If you are not careful, credit card debt can lead to financial disaster. Interest rates on cards are astronomical. Monthly payments are so low that you never really make much headway on the debt if you don’t have the discipline to pay more than the stated amount. Inevitably, a person’s credit card balances will just continue to grow and grow.

A very high percentage of people use their home equity lines of credit to pay off credit card balances. This strategy absolutely makes sense. The interest rates are lower on the equity line and interest charged on the equity line is deductible. The decision is really a no brainer with one caveat.

If you transfer the thousands of dollars in credit card debt to an equity line, you must be careful. Just because your credit cards are free and clear, you should not consider it a license to go out and start making purchases on them. Doing so can lead to financial ruin where you have used up both the equity line and again have massive credit card debt. If you use an equity line to pay off credit card debt, make sure to cut up your credit cards or hide them somewhere so you do not run up the balances again.

All the initial steps for starting your own business can easily be financed with the funds obtained from a home equity line of credit and the flexibility for repayment will provide you with the ease you need to concentrate specifically on your business instead on repaying the loan.
The characteristics of home equity lines of credit are perfect for this purpose.

In this article we will analyze the concepts of home equity and home equity lines of credit and explain why these particular lines of credit are perfect tools for starting new businesses and what the benefits that these financial products provide are.

Defining Equity

Equity is the difference between the current value of your property and any pecuniary obligations that it is guaranteeing. These obligations can be liens, mortgages, etc. The amount of available equity is obtained by subtracting the amount of the outstanding obligations to the valuation price of the property.

Thus, if you own a property that is worth $120,000 and your current mortgage balance is around $70,000 that means that you still have $50,000 of available equity on your home that you can use for obtaining a loan or line of credit and use it for any purpose you can think of. Following we will analyze home equity lines of credit for starting businesses.

Lines Of Credit for Businesses

Lines of credit are revolving sources of funds that can provide you with all the finance you need for starting a business if they are based on sufficient equity. The idea is that you are granted credit up to a certain amount limit which is guaranteed with your home equity.
In the above example you would count with up to $50,000 on your line of credit to start your own business.

There is no need for you to withdraw the whole amount and as long as you don't request money, the line of credit won't generate interests. You'll only have to pay a small maintenance fee.
Moreover, say you withdraw $10,000, the interest rate will only be charged over that $10,000. Once you repay the amount, it will stop generating interests and you can withdraw that amount or any amount up to the credit limit whenever you want.

As regards repayment, it is also very simple. You will only be required to repay a minimum amount every month, just like with credit cards. This minimum almost always consists on the interests and sometimes a small portion of the principal. This provides you with a lot of flexibility.
When starting a business you can't be suffering pressure from lenders because you need to concentrate on generating income rather than repaying a loan. Thus, home equity lines of credit provide you with all the finance you need and don't asphyxiate your business with high monthly payments.

Once your running business generates enough income for you to cope with higher payments, you can start repaying the principal at your best convenience.

Moreover, you can easily fix the interest rate (that is otherwise always variable) and turn the home equity line of credit into a home equity loan.

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Article Source : Kansas City Mortgage Refinance

About Author

Both Dan Lewis & Jessica Peterson are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Dan Lewis has sinced written about articles on various topics from Mortgage, Finances and Business and Finance. Dan Lewis is with Great Western Mortgage - .. Dan Lewis's top article generates over 18100 views. to your Favourites.

Jessica Peterson has sinced written about articles on various topics from Mortgage, Cars and Unsecured Personal Loans. Jessica Peterson writes finance articles for where she shares her knowledge about how to get a. Jessica Peterson's top article generates over 720 views. to your Favourites.