Is Home Equity Credit Line Right for You?

One of best sources of credit is your home equity line. This is because you can use value of your home as collateral for a loan without having to sell your property. Initially, home equity credit lines may provide you with large amounts of cash at relatively low interest rates. And, what's more, they also offer tax deductions, which is an advantage you can't find in other types of loans.

However, with home equity loans, your house serves as mortgage collateral. This further means that if you default on your loan, your lender may foreclose on your home. With home equity loans, therefore, your home is at risk if you are late or cannot make your monthly payments. Loans which require you to pay a large final (balloon) payment may lead you to borrow money in order to pay off this current debt. And if you do not qualify for refinancing, your home may be in jeopardy. In addition, because home equity loans give you relatively easy access to cash, you might find yourself borrowing money more freely. Selling your home may not always be option when a situation arises where you can't afford to make anymore payments on your loan. This is because most plans offered require you to pay off your credit line at that time.

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So with these figures at hand, you therefore decide to get a home loan. At an interest rate of 9%, monthly installment of a 20-year loan will be $900. Therefore, higher your repayment capacity, higher your loan will be.

The amount you get from your home loan largely depends on a number of factors. These include your age, profession, salary, city you reside in among others. Essentially, variation may also depend on lender.

What are Interest Rates offered for Home Loans?

Interest rates for home loans differ from institution to institution. Some can be as low as 1% and some can reach to as high as 12% or higher. The interest on home loans is usually calculated either on monthly reducing or yearly reducing balance.

There are also some cases where daily reducing basis is also adopted.

In annual reducing, which is most common, principal, for which you pay interest, reduces at end of year. Thus, you continue to pay interest on a certain portion of principal which you have actually paid back to lender.

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