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The Ins and Outs of a
Home Equity Line of Credit

by Mike Selner

Rough kitchen construction image fading to a finished kitchen remodel

You have worked extremely hard through the years to pay down your mortgage while increasing equity in your property, so why not have it available to utilize at your discretion? The current housing market has property values on the rise, which helps support optimal available credit for you to use on property improvements, long overdue vacations, college tuition or any other needs you may have.

Below is a simple overview of how a Home Equity Line of Credit works from qualification through utilization.

You can quickly figure out what funds could be available by subtracting 20% from expected property value, then reducing that figure by your current mortgage balance. See the example below as we break down a property with an expected value of $250,000 with a first mortgage of $75,000, leaving a potential available line of credit of $125,000.

Appraised value of home$250,000
Percentage– 20%
Percentage of appraised value= $200,000
Less balance owed on mortgage-$75,000
Potential line of credit$125,000

The expected property value used in the example above is then verified with an appraisal or evaluation through a third-party provider to determine the actual market value to be used in defining the maximum credit available. During this process, our team starts the underwriting process and will need documents to verify your monthly income & liabilities as we move towards your closing date. The entire process takes between 2-4 weeks on average.

Let’s move on to what occurs after closing, such as rate, term, and other factors. 

A Home Equity Line of Credit is a revolving line that can be paid down and used numerous times through a 10-year term, with the rate being variable and following prime rate with a floor of 4%. The monthly minimum payment is interest only based on the total withdrawn amount, giving you flexible options for your budget. In the example above, the interest only payment would fall around $420 if the full line of credit of $125,000 was withdrawn. You can pay down the principal as you desire and utilize the line of credit again. Or, you can pay interest only, waiting until you sell your property when the Home Equity Line of Credit would need to be satisfied through the proceeds of the sale.

You will receive a book of checks soon after closing for you to utilize the equity in your property at your discretion.

The equity in your home could be cash in hand for remodeling, repair, or other improvements to your home. It could be purchasing a new car, tuition bills, debt consolidation, or a multitude of other reasons. The program is structured around the equity in your home to establish a line of credit. Rates are reasonable with payment options to suit your convenience for this flexible tool allowing you to draw funds on an as-needed basis.