Equity Line of Credit: Keeping a Running Tab

2007-03-08 10:33:40

( Financial )



PROPERTY AS PAWN

Many people consider their home mortgages as an investment, and rightfully so. A home mortgage can be a viable source of cash for those who need it for some reason or another.

You can use your home as collateral for taking a secondary loan through home equity lines of credit or equity loans. A home equity credit line is a loan that is available to you and is based on the paid portion of your property’s mortgage.

As you pay your mortgage, a part of the payment is made against your loan principal. This is your equity line, where lending companies will base the loan-able amount that will be made available to you.

EQUITY – LINE OR LOAN?

There are two types of equity credit line. The first is the HELOC or the home equity line of credit. A home equity line of credit operates like a running tab on a bar or restaurant. There is an available fund that you can draw upon as the situation calls for it. You can opt to draw the entire fund or use them on a staggered basis depending upon the need.

Under a home equity line of credit the loan is refreshed as you pay off the principal. And as long as you meet your dues, then you can draw from your equity line of credit for an indefinite period of time. The flexibility of the equity line of credit is the reason why it is a very popular financial product.

The second type of equity line is the equity loan. There is no option to stagger an equity loan. Once you have been approved for an equity loan, you either get the loan-able amount or not. While you can loan a smaller value than what is offered to you, you can no longer use nor borrow the remaining amount while the equity loan is still active.


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