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A home equity
credit line is a re-usable credit
account which is secured by the equity
in your home. It has an adjustable
interest rate, usually based on the
prime rate as published by the federal
reserve or in the Wall Street Journal.
Depending on your credit, lenders may
offer a credit line based on prime rate
plus a margin, such as, a quarter of a
point, or prime plus no margin.
There is a draw
period of usually 10 to 15 years where
you can withdraw the funds as you
desire. During the draw period, you have
the option of making interest only
payments, or fully amortized payments
each month. At the end of the draw
period, the home equity credit line will
convert to a fully amortized loan for
the remainder of the balance.
A home equity
credit line is different from an equity
loan because you are able to draw money
out of the account as you need it,
instead of receiving the full balance of
the loan at closing. Another difference
is the adjustable interest rate, which
can adjust every month depending on the
economy. Also, closing costs are usually
less for a credit line when compared to
a fixed installment loan.
Because a home
equity credit line is secured by your
primary home, the interest portion of
your payments can be tax deductible.
Also, some lenders will lend as much as
100% loan to value.
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