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A Home Equity Line of Credit
There's also an excellent program available now that actually shows you how to save thousands on your mortgage - and even leverage a HELOC to potentially build wealth. You can learn more about Make Your Home Make You Rich at http://www.usecreditwell.com
Once approved for a home equity line of credit, you will be assigned a particular credit limit based on the amount of equity available in your home. Most lenders determine the credit limit on a HELOC by establishing a percentage of your home's appraised value and subtracting the amount of balance owed for your existing current mortgage.
If your home has an appraised value of $350,000 and you owe $270,000 then may be offered a HELOC of up to $80,000; $350,000 minus $270,000.
Additional factors will determine the value of your credit limit. Lenders will consider your probable ability to pay by analyzing your income, other debts, credit history and financial responsibilities.
Almost all home equity line of credit plans are set for a fixed period. During this period, such as five to ten years, you are eligible to borrow money as long as it is within your credit limit. It is very similar to using a credit card, with some distinct advantages to you.
When the original period expires, you may renew the HELOC. However, some plans do not offer renewals and once the period has ended, you are not eligible to borrow any additional money. Other lenders allow repayment for an agreed fixed period.
Usually, the draw period is set at five to ten years with a repayment period of ten to fifteen years. However, each lender could set its own draw and repayment periods. The most common draw periods are nine years and six months. The most common repayment period is for twenty years.
Once you have been approved for a home equity line of credit, you have the benefit of borrowing up to your limit and utilizing the equity in your home at any time. Most HELOC accounts come with special checks and plans allow you use credit cards or other methods to draw on the line of credit.
Some plans set limitations on the usage of the home equity line of credit. Most plans allow you to get the minimum amount for each transaction and maintain a minimum outstanding balance. Some plans also oblige you to draw up your first advance as soon as the line of credit is set up.
Like any other investment, there are costs to establish and maintain a home equity line of credit. First, there could be fees for property appraisals to determine the market value of your home. Second, some lenders may require an application fee that generally cannot be refunded if your application is denied. If you shop around, however, you can usually obtain a HELOC with no upfront fees - aside from the property appraisal.
In addition, you may be required to pay for a title search, attorney fees, title and property insurance, additional taxes, and preparation and filing of mortgages.
Once you have received your home equity line of credit, there may be other fees during the entire plan period. These include maintenance or membership fees and transaction fees for every withdrawal.
Although there may be some upfront fees involved with establishing your HELOC; your annual percentage rate will be significantly lower than any other type of credit. Plus, you can utilize the valuable equity built up in your home now - without the need to refinance or sell your home.
The interest savings should allow you to offset all the costs of maintaining and establishing the home equity line of credit. Sometimes, the lenders waive some or even most of the costs for closing the deal.
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