What exactly is a Home equity line?

Question

I have an equity of about 240K on my condo.I am pre-approved for a $162K Home Equity line.I bought it for 200K 4 1/2 years ago and it increased in value by almost double.So,what exactly does this mean for me?

Answer 1

A HELOC differs from a conventional home equity loan in that the borrower is not advanced the entire sum up front, but uses the line of credit to borrow sums that total no more than the amount, similar to a credit card. At closing you are assigned a specified credit limit that you can borrow up to. During a "draw period" (typically 5 to 25 years), HELOC funds can be borrowed "on demand" and you pay back only what you use plus interest. Depending on how much you use the HELOC, you will have a minimum monthly payment requirement (often "interest only"); beyond the minimum, it is up to you how much to pay and when to pay. At the end of the draw period, you will have to pay back the full principal amount borrowed either in a lump-sum balloon payment or according to a loan amortization schedule.

Another important difference from a conventional loan: the interest rate on a HELOC is variable based on an index such as prime rate. This means that the interest rate can - and almost certainly will - change over time. Homeowners shopping for a HELOC must be aware that not all lenders calculate the margin the same way. The margin is the difference between the prime rate and the interest rate the borrower will actually pay. Lenders do not generally offer this information and it is up to the consumer to ask for it before taking a loan.

Answer 2

If you take one out it might mean bankruptcy. It's like a credit card but it's secured by your house. If you have only one mortgage on your house then you can just walk away when the price goes down below what you paid and for some reason you have to move or can't make the payments. It will mess with your credit but the bank can't go after your other assets/wages to cover their loss. If you need money now and you think you can still sell at a profit you might want to sell and rent for awhile. If you can invest your money and even save some more then you might even be able to buy a house for all cash next time! A women at my work was lucky enough to sell at the high and made over $200k. Her old house now is worth about $100k less than what she sold at. Her rent is over $1,000 less that what her mortgage was. She is very lucky. Unless you are buying an income producing asset it's better to save before spending than borrow to spend.

Answer 3

that means that if you want a signature line of credit to use at your leisure and pay for only what you use/need on a monthly basis, you can...it is also secured by your home to the appraisal value your lender gave you in the line of credit they spoke of.......