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An Introduction to Equity Line of Credit

By Charles Hopkins Published 10/26/2007 | Business and Finance
Many people desperately want a home.  Actually, having a home is a need or necessity.  But the price of having a home is very expensive.  You need large sums of money in order to buy your home.  But if you are an average person whose income is only enough to support you and your family, then having your own home is a very big problem.  There is the pressure of looking for the money in order to purchase your own home.

You may apply for a home mortgage, but increasing interest rates can also hinder you from for applying one.  There are several alternatives that you can use.  One of them is mortgage refinancing.  This decreases the interest rates you are paying, but it does have its own risks like penalties, extra expenses and the like.  There is another option that you can resort to.  That is equity line of credit.

The Basics of Equity Line of Credit

Equity line of credit, ELOC for short, allows the creditor to lend the debtor a maximum amount of money payable within a specific period of time (in other words, a term) using any collateral that is available (i.e. home, car and other valuable objects).  It combines a line of credit and an equity loan.  Equity loan is defined as a loan which is summed between the difference of your total assets and your total liabilities.  With equity line of credit, you can borrow the maximum amount of your equity loan for as long as it will not exceed your credit limit.

Like any other loans, equity line of credit allows you to borrow a specific sum of money payable within a specified term with interest.  But unlike any other loans, it offers low interest rates.  This is because it is tied to prime rates, which local banks determine.  With equity line of credit, you can have your loan in a smaller price.

There are several types of equity line of credit.  They are home equity line of credit, commercial equity line of credit, best home equity line of credit, and others.  All of them depend on the collateral being used.  Equity line of credit is very advisable to debtors to avail of, especially if they have no mortgage.  Aside from having a low interest rate, it is available everywhere you go, thus, accessibility is not a problem.

What to Consider

There are many considerations that you must think of before you have your equity line of credit.  Just like any other loans, it requires a responsible debtor that can repay his monthly dues every month.  Thus, you are required to have a stable income so that you have the capacity to support and to repay your liabilities.  Not repaying your monthly dues will cause you to have a bad credit.  If you are tagged with a bad credit, then you decrease your chances of having a loan or having a loan with a lower interest rate in the future.  Thinking these considerations may help you solve your financial problems.  Thus, you must not forget them.