Line of Credit Home Loans

Line of Credit

The line of credit or equity line as it is sometimes called provides funds to be used for purchasing property, performing renovations and other types of needs that require large sums of cash. This form of lending has actually been around for well over a century and has been used by people of different income levels to purchase what they need.

What is a Line of Credit?

This is a pre-approved amount of money from a lender that is usually based on your personal credit rating and other factors. A line of credit can be established by the amount of money you have on deposit combined with your personal assets and lending history. Property is one of the most frequent sources for having a line of credit. Quite often, you can create a line that is usually 80% of the property’s value depending on the lender.

The beauty of a line of credit is that the money can be used for any number of purchases that range from investing in the stock market to purchasing a home depending on the level that you have achieved. You can borrow up to the maximum amount and use it for any number of purchases. For example, if you have a line of credit worth $100,000, you can use it all at once or any amount that you want.

Benefits of Having a Line of Credit

The advantages start with it being pre-approved so that you can use it for whatever you want. Whether you are interested in purchasing property or just borrowing a few thousand to make some renovations, this is a type of loan that is one of the most desirable.

Another advantage is that you only pay interest on the amount that you actually used. So, if you only used $20,000 of your $100,000, then you only pay the interest on the $20,000 that you took out. This gives you great flexibility on how much you want to use and you can combine it with other loans if you desire to make your purchase.

Also, if your credit line is based on property, you may be able to take out money at interest rates lower than what a lender might charge for a specific purchase. For example, money from your line of credit will often have a lower interest rate than an auto loan if you wish to purchase a vehicle.

You can also better gauge the amount you will need to pay back when using a line of credit as well. Because these are “evergreen” loans that have no time limit on paying them back as long as you make monthly payments, you can stretch out the pay back plan for years if you so desire. This also provides more flexibility when using this form of lending.

Should You Get a Line of Credit?

This will depend on your needs, but generally speaking it pays to know just how much of a line you can receive based on your assets. A credit line is often a better source than many traditional loans because of the flexibility involved. However, if you are purchasing property to move to a more expensive place, then you might find this form of lending not to be advantageous. 

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