Home Equity Line of Credit
Home
equity lines are offered based on the what
is commonly known as Combined Loan to Value
(CLTV). Which is determined by combining the
1st mortgage loan and the desired credit
line and dividing the total by the value of
the property.
The higher the ratio the higher the rate. As
the the higher ratio is normally associated
with higher risk level. Factors that will
determine what ratio will be acceptable to a
lender include but are not limited to;
credit rating, documentation level, debt
ratio, and loan amount.
The
Home equity line of credit calculator will
determine possible available credit lines
based on lender's guidelines. Though the
calculator allows for calculating available
credit even is you have an existing seconded
loan in most cases in today's economy
chances are that the line of credit is only
going to be available if it is used to pay
off the existing second.
Use
the home equity line of credit with caution
and pay special attention to the lender's
guidelines.
Unlike a purchase or refinance mortgage
which is granted for a fixed amount, an
equity line of credit may be adjusted during
the life of the loan at the lender's will.
In most cases the small print of the equity
line documentation will include a clause
that that gives the grantor the right to
alter the credit limit at will and lenders
will exercise that right if the real estate
market takes a turn for the worse.
The
above is only true for the unused portion of
the equity line of credit so long as the
borrower has kept up with the payments of
the used portion.
The
debt ratio calculation for an equity line of
credit is different (a little higher in most
cases) than a purchase money or refinance
mortgage loan, but the fact that there is
room in the Combined Loan to Ration does not
automatically qualify one for a credit line.
Other factors to consider are; Equity lines
are normally priced with little or no
closing costs but at a higher rate than the
normal prevailing rates for first mortgages
or Trust deeds. Furthermore unlike first
mortgages equity lines are not available for
30 year periods but are rather based
on 10 or 15 year periods, though they are
available with interest only payments.
The
fact that equity lines of credit could be
based on interest only payments is very
important because it is simply easy to
forget that very essential reality and
suddenly wake up to the fact that a huge
balance is outstanding which in slow markets
may be impossible to refinance.
In
brief; exercise a lot of caution when using
an equity line of credit.
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Home
Equity Line of credit 
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