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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