Obtaining Revolving Cash From An Equity Credit Line

2007-03-08 10:33:40

( Financial )



An equity credit line is the maximum amount of money that a financial institution (such as a bank) can lend you, so that you can make unlimited withdrawals within a specified timeframe. With equity credit lines, there is no need to request for any further approvals for every withdrawal that you make, for as long as your withdrawals are within the specified time period given by the financial institution.

One of the most common types of equity credit lines is a home equity line of credit. In this type of equity line, the amount of your credit line is based on the equity of your home. Equity refers the value of your property minus other amounts owed against it. With a home equity credit line, you will be asked to use your property as collateral.

There are some people who choose not to apply for this type of equity line because it puts the property at risk. In the event you default in your payments, you can risk losing the ownership of your home. Additionally, when you decide to sell your property, you will most likely need to pay off your equity credit line before you can put your home up for sale.

When you are granted an equity line of credit, you are allowed a certain period for which you can make unlimited withdrawals; after which, repayments become due, and must be paid within the given period. During the withdrawal period, you can choose to pay only the required minimum monthly amount to cover for the interest charges, pay a portion of your principal, or decide to settle the balance due in full. The amount which you repay plus the remaining available balance would then be the maximum amount you can use. As you pay off your balance, the available credit line increases, and can be used again, similar to a revolving fund.

During the specified repayment period, you will no longer be allowed to make any withdrawals: you must start making monthly repayments during this time, so that you can settle and close your equity line of credit.

Most lenders will ask you to make an initial withdrawal when your equity line is set up, and provide you a specific minimum amount for each withdrawal that you make.

An equity credit line withdrawal can be made through check, funds transfer and sometimes through a credit card (higher interest rates apply for card transactions).

Equity credit lines provide lower interest rates and lower required minimum payments each month compared to credit cards. Interest rates vary, and are deductible from your total salary for the year.

You can make use of equity line of credit calculators, which are available on the Internet, to assist you in determining how much credit limit can be granted to you, before deciding whether you should apply for an equity credit line.


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