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Unformatted text preview: m amount you can borrow at any one time while you have the plan. Many lenders set the credit limit on a home equity line by taking a percentage (usually 75 percent) of the appraised value of the home and subtracting the balance owed on the existing mortgage. Example:
Appraisal of home$400,000 LTV 75% Percentage of appraised value$300,000 Less mortgage debt– $250,000 Potential credit line$50,000 In determining your actual credit line, the lender also will consider your ability to repay, by looking at your income, debts, and other financial obligations, as well as your credit history. Home equity plans often set a fixed time during which you can borrow money, such as 10 years. When this period is up, the plan may allow you to renew the credit line. But in a plan that does not allow renewals, you will not be able to borrow additional money once the time has expired. Some plans may call for payment in full of any outstanding balance. Others may permit you to repay over a fixed time, for example 10 years. Once approved for the home equity plan, usually you will be able to borrow up to your credit limit whenever you want. Typically, you will be able to draw on your me by using special checks. Under some plans, borrowers can use a credit card or other means to borrow money and make purchases using the line. However, there may be limitations on how you use the line. Some plans may require you to borrow a minimum amount each time you draw on the line (for example, $300) and to keep a minimum amount outstanding. Some lenders also may require that you take an initial advance when you first set up the line.
Dynasty School (www.dynastySchool.com) 15-9 REAL ESTATE FINANCE WHAT SHOULD YOU LOOK FOR WHEN SHOPPING FOR A PLAN?
If you decide to apply for a home equity line, look for the plan that best meets your particular needs. Look carefully at the credit agreement and examine the terms and conditions of various plans, including the annual percentage rate (APR) and the costs you'll pay to establish th...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.
- Spring '10