Line Of Credit Mortgage–Access Your Equity When You Need It

2007-03-08 10:33:40

( Financial )



You probably took out a mortgage when you bought your home. As you made monthly payments, you built up equity in your home. That equity is locked in, however, and one way you can access it is by borrowing against it through a credit mortgage, either a fixed-rate mortgage or a line of credit mortgage.

You can also sell your home. That transaction can pay your existing loan and generate a tidy surplus. But then you’ll have to find a new home. If you need money, not in a lump sum but probably in a series of drawings, your best route is a line of credit mortgage.

A line of credit mortgage is actually a second mortgage on your home. The first mortgage is the one you took when you bought it. A line of credit mortgage is very convenient when your cash needs are stretched out over time. For example, you make home improvements by stages instead of all-at-once.

Interest rates on a line of credit mortgage are variable, and are usually indexed to the prime lending rate. This exposes you to the possibility of paying higher interest rates over time. But if you intend to pay the loans within three years or shorter, that risk is probably something you can take.

Some people take a line of credit mortgage for purposes of mortgage refinancing. If you do this, you can use the proceeds of the loan to pay off the remaining amount on your first mortgage. Generally, it is not recommended that you use a second mortgage to pay off a first, because the second usually bears higher interest than the first.

However, if interest trends indicate that you can lower your interest rate by mortgage refinancing, then it is a viable option. If you have 100,000 dollars to go on your existing mortgage and if by mortgage refinancing you can reduce your interest rate by 2 percent that translates into about 160 dollars less in monthly interest payments.

A line of credit mortgage brings you some peace of mind, knowing that if emergencies or unforeseen cash needs occur, you can be sure the money will be there.


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