Line of Equity: Mortgage-free Portion of Property

2007-03-08 10:33:40

( Financial )



EQUITY VALUE

A line of equity is commonly associated with a home equity line of credit or HELOC or an equity loan. Equity lines of credit refer to how much you can borrow against your property’s equity value.

The most common method of acquiring a property is through mortgage. As time passes, the payments you make on your mortgage will eventually be paid off against the principal loan amount. This means that a part of your home becomes free of debt - this portion is your line of equity.

You can use your line of equity as security for borrowing additional money from lending institutions. A line of equity can either be of two things – equity loans or equity lines of credit. An equity loan is simple enough. You borrow additional money using your property’s equity as collateral. You cannot borrow more than what is set by your equity’s value, and once you have taken the loan of equity you can no longer make additional borrowings against it.

CREDIT LIMIT

An equity line of credit is a bit more complicated and more flexible. From your line of equity, your lender will set a maximum useable amount from which you can draw from every now and then. Similar to a credit card where you have a credit limit, you can opt to use this line of equity on a staggered basis or use all of it at one time. As you pay off the principal, the amount is returned to your credit line of equity which you can use again.

An equity line of credit provides you with more flexibility because you do not have to necessarily exhaust your entire line of equity. You actually have the option of drawing only what you need at the moment, then drawing more as the situation calls for it.


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