Making A Home Equity Line Of Credit Work For You

When it comes to getting money from the equity of your home for that special project or the expense that you may have, a home equity line of credit usually known as a HELOC might be the most advantageous way to go. It not only gives you an array of choices that other equity loans do not offer, but it also equips you with the flexibility of being able to make some choices. In this article, were are going to look how you can make a home equity line of credit work for you. 

In most cases, a home equity line of credit can be referred to as a second mortgage, and as such, it will add another payment to your bills every month. This means that you will need to be careful of how much money you borrow. And in this regard, you should also calculate how much of a payment you can afford monthly so that it will not become a hard task to raise the money each month.

Ideally, you do not want a lender determine this for you. This is because they can't lose whether you make the payment or not and so have no incentive to ensure that can affod the payments - no matter what the lender might say! Also, closing fees may or may not apply, but since most lenders charge a substantial amount of fees for closing a home equity line of credit, you might want to look around for one that doesn't do so.

Once you have received an approval for the loan, you will have an account set up for you and it will have a credit limit. You will be given either a check book or a credit card that gives you access to the funds. Most lenders who give out home equity lines of credit require you to make an immediate withdrawal while some will require each withdrawal after that to have a certain minimum amount.

A HELOC give you the opportunity to make a withdrawal of as much money as you need at the time when you need it. Ideally, this is usually a draw period which is basically the period of time when you are allowed to make withdrawals. This can be up to 11 years for most HELOCs but it depends with terms of your home equity line of credit agreement.

During the draw period, keep in mind that you will be paying the interest of all the money you have spent so far. That interest will most likely be calculated on a daily basis for the purposes of keeping you account current with your withdrawals. However, you need to be aware that unless you wish to do otherwise, at the end of the draw period, you will have 100% amount of the loan to pay. It is therefore wise to pay down some of the principal in order to have reduced payments at the end. Ideally, you might want to check with your lender that there are no penalties for early payoffs and, if there are early repayment penalties, exactly what they are.

Keep in mind that some fees may apply to your home equity line of credit. Some lenders may charge you a fee for maintaining the account. This can either be a monthly or a yearly charge or even both. There can also be a per withdrawal charge and even a no activity charge, this is because the lender makes money when you withdraw, they will not want to see their lent money not being used (basically it earns interest for them). However, by looking around, you can land on a home equity line of credit that does not charge all the mentioned charges.

So, now the net step is to look at the various offers and ask the lender some tough questions!