Equity Lines of Credit Back You Up In Time Of Need

2007-03-08 10:33:40

( Financial )



Equity lines of credit differ from home equity loans in that you can draw money up to a maximum amount when you have a credit line of equity, as opposed to getting a loan for a fixed amount. If you have already built up substantial levels of equity in your home and now want to provide for unforeseen cash needs, you can arrange with your bank to process equity lines of credit for you although you may not need the money immediately.

When you need immediate cash, you can avail an equity line of credit loan to solve your problem. This transaction would be a partial drawdown on the approved amount in your equity lines of credit. You would write your check only for the amount you need—to pay credit card bills, perhaps, or send your child to college. And you still have an available balance for other emergencies.

Equity lines of credit refer to revolving credit lines the bank arranges for you. That means, if you have a line approved for a certain amount and you use only half of it, you can still borrow against the remaining line should you need more money in the future.

An equity line of credit loan always comes with a variable interest rate, indexed to the prime lending rate. This can mean that you pay a lower interest rate at the start than you would on a home equity loan. That rate can go up over time, however, in step with federal interest rates. You will thus have to watch out for interest rate movements. Of course, you pay interest only on what you actually borrow.

This variable rate feature in a home equity line of credit loan makes it a good source of financing for loans that you expect to repay within three years or shorter. If you want to pay off a loan over a longer period, you’re better off getting a home equity loan with a fixed interest rate.


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