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Peoples Southern Bank
When Your Home Is On The Line:
What you should know about home equity lines of credit
More
and more lenders are offering home equity lines of credit. By using the
equity in your home, you may qualify for a sizable amount of credit, available
for use when and how you please, at an interest rate that is relatively
low. Furthermore, under the tax law, depending on your specific situation,
you may be allowed to deduct the interest because the debt is secured
by your home.
If you are in the market for credit, a home equity
plan may be right for you, or perhaps another form of credit would be
better. Before make this decision, you should weight carefully the costs
of a home equity line against the benefits. Shop for the credit terms
that best meet your borrowing needs without posing undue financial risk.
And remember, failure to repay the line could mean the loss of your home.
What is a home equity line of credit?
A home equity line is a form of revolving credit in
which your home serves as collateral. Because the home is likely to be
a consumer's largest asset, many homeowners use their credit lines only
for major items such as education, home improvements, or medical bills,
and not for day-to-day expenses.
With a home equity line, you will be approved for
a specific amount of credit, your credit limit, indicating the maximum
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 (say 75 percent) of the appraised value of
the home and subtracting the balance owed on the existing mortgage. For
example:
|
Appraisal of home |
$100,000 |
|
Percentage |
x 75%
|
|
Percentage of appraised
value |
$75,000 |
|
Less mortgage debt |
$40,000 |
|
Potential credit line |
$35,000 |
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.
Peoples Southern Bank offers a home equity solution
called PSB's EquiLine. Click here to find
out more about our home equity line of credit.
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