Link to a forum : Pay off Home Equity Line of Credit?

First comment from this forum :

02-24-2003(5 posts)

"My wife and I have a home equity line of credit with a $23k balance. Rate is variable at 1.75 over prime and the monthly payment goes to *interest only*. We have the opporunity to pay most of it off (17k) with $ from a money market account (annual return of 1.5%). Investing in the stock market is not an option for us right now, and it is important for us to remain liquid just in case one of us loses our jobs in the next few years (an unfortunate reality in our neck of the woods).

My theory is that if we put the 17k towards the line of credit, we'll save ourselves about $80/month in interest payments, or about $960/year, which is more than we would see in return from the money market (and also more than the tax benefit if we were to leave the balance on the LOC). The way I see it is that if we hit financial hardship, we can always borrow from the line of credit just as easily as from the money market.

And lastly, we still have our first mortgage of 124k with 29.5 years left to pay, so we still have plenty of interest to write off in order for us to itemize!

Can anyone advise on the pros and cons of the above? Am I missing something?"

see this forum at : http://forums.kiplinger.com/showthread.php?t=1193

Article : Making the Most Out of Your Home Equity Line of Credit

By Ezilon.com Articles Nov 12, 2005, 20:06

Making the Most Out of Your Home Equity Line of Credit

Not all of us are full owners of our dwelling places. With the high cost of living these days coupled with the rising financial demands necessitated by our existence in this day and age, people have deemed it more appropriate and practical to pay for a house in installments. Some even resort to home mortgage loans to borrow the payment for the house, in which case, the creditor would get to keep to the deed to the said house as security while the mortgagee would pay for what he has borrowed in accordance with a similar installment plan he has arranged with the mortgagor.

Under these arrangements, what option is available for the house �owner� if he has to acquire another loan and he has no other property to use as collateral? Is he at a dead end? Should he just wait until full ownership of the house is transferred under his name before he could pursue other credit options?

Not necessarily. There�s always what many people call as home equity line of credit.


What Is Equity?

Before we could discuss what a home equity line of credit is, a thorough knowledge of the term �equity� is needed. Equity is quite simply the rights you have over a property that has gradually accumulated and accrued to you.

For example, the house you�ve been paying for every month, the arrangement of which calls for full payment to be completed in equal installments for 100 months. Supposing you have spent 50 months in paying for the house, this would mean that you already have a 50% equity on the same. Though you cannot alienate this equity ever so freely, there are some instances that are allowable by law where you could use it for some beneficial ends. A home equity line of credit is one of them.


What Is A Home Equity Line Of Credit?

A home equity line of credit is an open-ended credit line. It�s like an account from which you could borrow some loans from time to time. You would have to pay for whatever you would borrow, of course, with corresponding interests of course, but having a dedicated credit line would make those financially trying times easier to bear.

A home equity line of credit, by its very name, uses whatever equity you have over a house that have accumulated throughout the years as security for whatever amount you would have to borrow.

It is important to note that most home equity lines of credit are second loans. They are applied for during the subsistence of a home mortgage loan. Most people who avail of home equity lines of credit actually use the same to pay off the home mortgage loan, because the former is more beneficial in quite a number of regards which we will discuss in the next paragraph.


What Are The Benefits Of A Home Equity Line Of Credit?

A home equity line of credit is preferred by most people considering that it is less onerous for their running budget. Let�s take a look at two essential advantages that separate a home equity line of credit from other financial options available in the market.

1. A home equity line of credit imposes one of the lowest interest loans that can be found anywhere; and

2. The interests demanded by a home equity line of credit are usually tax-deductible in most states.

These outstanding benefits make a home equity line of credit a more lucrative and practical option. As we have discussed above, you could simply pay of the home mortgage loan with this kind of credit, and you will have to pay what you have borrowed with substantially lower interest rates. Doing the math, it would immediately become apparent that you will be able to save more for your other financial obligations if you engage yourself with a home equity line of credit.

source : http://www.ezilon.com/information/article_13630.shtml

Link to a forum : Can equity line of credit be denied?

First comment from this forum :

"I have a home equity line of credit that I can use for ten years. Are there typically any provisions in these agreements that would allow the lender to deny lending on the unused credit before the ten year period ends?"

see this forum at : http://forums.kiplinger.com/showthread.php?t=10219

Article : Truth About Home Equity Loans

If you are a home owner and you need money, you can consider home equity loans as a means of raising money. Your home will serve as collateral and you can use the funds you have invested in buying or improving your home, as equity.

Your home serves as the security against which home equity loans are given, but remember that it may have to be sold to pay off the debt, if you are not able to keep up with the monthly payments. If you need a large amount of money for medical expenses, college tuition for your kids, debt consolidation, home repairs or other necessary requirements, you can consider home equity loans.

You can opt for fixed rate mortgages or adjustable rate mortgages. These home loans are available either as a lump sum or as a revolving line of credit. One of the benefits of home equity loans is that the interest you pay is usually tax-deductible. The Federal Trade Commission (FTC) advises that your home may be your single most valuable asset and those who agree to take home loans based on the equity they have in their homes, may be putting their most important asset at risk.

Homeowners must be careful while taking home equity loans, because certain exploitative borrowers indulge in abusive practices like equity stripping, loan flipping, hiding loan terms and adding extra charges. The elderly, minorities and those with low incomes or poor credit, are most at risk and these exploitative lenders tend to target them. Lenders who indulge in equity stripping help home owners with a low income to take home equity loans that they may not be able to afford. Home owners who are unable to keep up with the monthly payments usually end up losing their homes.

Home owners who have fallen behind in their mortgage payments and are facing foreclosure may be approached by another lender. The lender will offer to save them from foreclosure by refinancing their mortgages and also offer lower monthly payments. Actually the monthly payments may be lower only because the borrower will only be paying interest every month, while the principal amount remains unchanged. The entire amount borrowed will be payable at the end of the loan term, in one lump sum, called a balloon payment. Borrowers, who cannot make the balloon payment or refinance the loan, may lose their homes.

Loan flipping involves refinancing existing mortgages to raise money. Home owners who do this to raise money may have to pay high points and fees, apart from prepayment penalties. Borrowers who refinance their home loans may have to pay a higher interest rate and accept a longer loan term. With each refinancing they may take on more debt and increase the risk of foreclosure. Unscrupulous lenders may try to trick borrowers into signing papers for credit insurance that they don’t need, or ask them to pay additional fees and costs. Others may ask borrowers to sign over their deeds, in return for saving them from foreclosure.

Never sign any document without reading it carefully or sign a document that has blank spaces meant to be filled in later. Never consider home equity loans, if your income is insufficient to meet the monthly payments. Don’t get lured by extra cash or lower monthly payments. Use your discretion to determine whether the loan you are considering is worth the money you will have to pay for it. Before signing up for home equity loans or signing away their deeds, home owners must consult trusted and knowledgeable family members and/or attorneys.

source : http://www.myloanexpert.com/news/truth-about-home-equity-loans.html