No matter the circumstances, there may come a time where you need additional funds to pay for whatever life throws your way. Whether you need to pay for repairs to your home or want a safety net to cover unanticipated expenses that may occur down the road, a home equity line of credit may provide the funds you need. Before executing a line of credit, however, it's important to know how this form of loan works. Melvin Monachan is dedicated to providing knowledge and insight to New Yorkers who wish to learn more about lines of credit.
What is a Home Equity Line of Credit?
A home equity line of credit works differently than a standard mortgage. Whereas a loan such as a first mortgage provides a fixed amount that is available in one lump sum just days after your closing, a home equity line of credit essentially works like a credit card--you are able to draw money from your line of credit whenever you need to, up to a certain amount. The limit on your line of credit is determined by the amount of equity that you have in your home.
Say, for example, that you want to take out a home equity line of credit for $50,000 in order to add on to your home and have additional funds in case of an emergency. You would need to have at least $50,000 of equity in your home to do so.
In contrast to a fixed-rate mortgage, a home equity line of credit has an interest rate which is variable, much like a credit card. These loans have limits on the minimum interest rate that you can see over the life of your loan, as well as caps on how high your interest rate can be. Like a credit card, these interest rates often vary based on market conditions and can change quite frequently.
It's always important to pay attention to the terms of your home equity loan. During the initial "draw" period, it is common to make an interest-only monthly payment on your loan. Once the draw period ends and the repayment period is initiated, your monthly payment could increase substantially, as you will be expected to pay back the remaining balance of your home equity loan during the repayment period.
It's important to understand that like any loan, your home equity line of credit will result in a mortgage on your home. This means that if you stop making payments toward your line of credit, your home could be at risk of foreclosure.
Have Additional Questions, or Ready to Close? Contact us Today
Whether you have additional questions regarding a home equity line of credit, or whether you are ready to schedule a closing for your line of credit, Melvin Monachan is happy to help. With years of experience conducting real estate closings in New York, you can count on Monachan Law to provide quality representation during your real estate closing. To get answers to questions related to home equity lines of credit, or to schedule your closing, fill out an online contact form or call (347) 620-0565 today.