If you need extra cash, you may have a number of credit options available to you, including opening a line of credit. A line of credit works like a credit card in that you are approved for a max amount, but can spend as much or as little of that amount as you choose, over an agreed period of time. This format allows for much more flexibility than with a typical loan.
Collaterol
With any line of credit you must put up some form of collateral. For home equity lines of credit, the collateral would be your home. If you default on your line of credit, you may lose your home.
Calculating Lines of Credit
For a home equity line of credit, a lender takes a percentage of your home's appraisal (anywhere from 75 to 125 percent) and subtracts it from what you owe to determine your credit limit.
Interest
Since you put up collateral, lines of credit typically offer lower interest rates. However, often the rates are variable. Always know your rate before taking any money out.
Fees
There may be a number of upfront fees, similar to those you acquire when taking out a mortgage. Expect to see application fees, appraisal fees, points and more.
Truth in Lending
The Truth in Lending Act requires all lenders to fully disclose any fees associated with the loan. Be sure to shop around, tallying the fees, to make sure you get the best deal.
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