Understand Your Home Equity Line of Credit

Let us quickly understand this broad term, "home equity line of credit" first. A home equity line of credit amounts to an arrangement where a borrower's home acts as protection/collateral for a loan. This means that your home becomes a source of credit to finance home improvement projects, education, retirement programs, and other big ticket items. In maximum number of cases your bank or lending institution will allow you to draw upon a fixed amount of equity. This number is always based on a percentage of the appraised value of your property minus the rest of the money you owe on your mortgage.

Let me explain you this with an example. For instance, let's say that your home is worth around $200,000, and your equity line of credit allows you to access 50 percent of that value. Does that mean you can take out $100,000 worth of credit against your home? Not quite -- you have to subtract out how much you have left to pay on your house.

Always keep in mind that once the period during which you can draw your equity closes, you have to pay back the loan. It is a compulsion. This can happen all at once or over a fixed amount of time. Understand the conditions properly by which you need to repay the money before you start taking out an equity line, since the arrangement can have long-term consequences for your family's financial plan.

Now you will ask me is there any danger using the home equity as a kind of credit card? Absolutely -- if you fail to pay back the balance you owe plus your interest, you can get into creditor trouble and potentially lose your house or at least go into foreclosure. Trust me you might be able to get a better rate on your equity line of credit than you could by applying for standard consumer credit cards.

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I would like to conclude by advising you that always figure out various financing options before you institute paperwork for your equity line of credit, and take into account whether or not you might be moving in the next few years, since that may impact your rates and potential refinancing options.

Secured Homeowner Loans

In a recent report from The Halifax Building Society, it was found that almost (58%) of homeowners have invested in home improvements in the past 12 months. Most popular home improvement was interior decoration but new kitchens and new bathrooms also proved to be very popular. Rather than pay cash from savings, many choose to use the equity they had built up in the property as security for a homeowner’s loan.

Although home improvements are a common reason for borrowing money, homeowner Loans can be used for many purposes including business start-up, university fees or that dream holiday for example. Homeowner loans are secured and offer lower interest rates, larger sums of money and longer repayment terms.

Generally speaking anyone who has sufficient equity, even if their credit rating is not perfect, will be approved for a secured homeowner loan.

What is a Secured Loan?

A secured loan is a loan secured against your property. This security lowers the risk factor for the lender making loans less expensive and more readily available.

What is Equity?

Equity is simply the current value of your property less the outstanding mortgage. So, if your property is valued at 300,000 and you have an outstanding mortgage of 100,000 the equity would be 200,000. Any outstanding loans secured against your property will also be subtracted from the total equity value. Property prices are dynamic so you may discover that you have greater or lesser equity available to you depending on the strength of the property market.

Is a Secured Loan for Me?

If you are planning on applying for a loan and the amount you are looking to borrow is between 7,000 and 75,000 or more a secured loan will benefit you by offering low cost payments for larger amounts of money.

Always be Sensible and Think your Loan Through

When you apply for any loan secured or unsecured commonsense always applies. With a secured Loan you could lose your assets if you fail to keep up with payments. However, Payment Protection Insurance (PPI) can protect your assets and offers a solid safety net in event that you are unable to make loan payments due to ill health, injury or unemployment.

Lender Selection

Applying for a loan is something we all do wither it is a mortgage to purchase a new property, finance on a car or a bank loan to upgrade your kitchen. It is important that you work with an FSA regulated lender who is reputable, check the small print to understand the conditions that apply and if you are unclear on anything ask the lender to explain further.