Home Equity Credit Lines


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Home equity credit lines offer a re-usable credit account secured by placing a second lien on your home. Payments are subject to change because equity credit line rates can be adjusted every month, based on an index, usually the prime rate as published in the Wall Street Journal. 

Interest accrues only on the outstanding balance of the account as you withdraw money, instead of accruing on the full available balance, as in a fixed loan. Withdrawals from your home equity credit line can be made in variable amounts.

Each lender has different guidelines, including options like zero costs, and no fee home equity lines. Some lenders will offer a maximum loan to value of 70%, while others offer 90%. The maximum credit lines can be as much as $300,000. As a general rule of thumb, most home equity credit lines are only available for owner-occupied single family homes, condominiums, and town homes.

Home equity credit line terms typically offer you the choice of making either interest only monthly payments, or fully amortized payments. There is a draw period of 10 to 15 years, during which you can withdraw money from your credit line. After the draw period is over, the account automatically converts to a fully amortized home equity loan for any remaining balance. 

When comparing home equity credit line rates and terms, remember that a lower margin means lower payments at each rate adjustment, because the rates are calculated by adding the index to the margin, which is a fixed number set by the lender.