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Question: How can I gain access to my home equity without refinancing? Answer: Two ways to access your home equity are to either take out a home equity loan, or else to secure a home equity line of credit. These two methods avoid the high costs that usually accompany refinancing. Question: Tell me about a home equity line of credit. Answer: A home equity line of credit is a maximum amount of money that a lender will allow you to borrow. This maximum is based on the current value of your home, your credit worthiness, and how high an interest rate you are willing to pay to get a maximum line of credit amount higher than the normal maximum of 80 percent. You access your line of credit by writing a check anytime you want. You pay interest on the outstanding amount you owe, and you don’t pay any interest at all until you actually use your line of credit. You are not obligated to use your line of credit, and may choose to never use it. Question: What is required to apply for a home equity line of credit? Answer: You must qualify according to the lender’s standards for applicants. Generally speaking, you should have an adequate amount of income, and you should have equity in your home, preferably at least 20% or more of its total value. Question: When does a home equity line of credit make sense? Answer: If you need a lump sum of money for an important reason, than consider a home equity line of credit. This is true if you know that you can soon pay off your loan balance. Question: When interest rates are low, do you recommend an equity line of credit or refinancing? Answer: To use money over the long term, avoid an equity credit line that is tied to a variable interest rate. Interest rates fluctuate, and in a few years, you could be paying much higher monthly interest costs. When interest rates are very low is the time to refinance, even if there are closing costs, providing you obtain a very low fixed interest rate that will be stable and low over the long term, and providing you are going to be living in your home for many years to come. It you are going to be moving within 2 to 3 years, consider a line of credit. You avoid the refinance charge (which can be significant), and you can usually obtain a credit line for very low cost, or no cost at all. Question: When interests rates are high, does a home equity line of credit make sense? Answer: When interests rates are moderate, and the expectation and trend is continued decreasing interest rates, then that is the best time to obtain a home equity line of credit. Question: My credit is terrible, I can’t afford to pay make payments on the loans I have, so what can I do? Answer: If there is no one to bail you out (friend, family, etc), contact the lenders you owe and try to negotiate a reduced payment schedule or a longer payment term to protect what little money you have to pay your debts. |