Home Equity Lines

Home Equity Lines - Living Dangerously

In some cases, home equity lines of credit are seen as appropriate and even beneficial opportunities for a mortgage refinance. Stop right there! Before you go out and refinance your home loan with home equity lines, be sure you know these important differences between your first home mortgage and a home equity line of credit.

Its all in the details

In principal, a home equity line of credit (home equity lines, HELOC) is simply an ARM with your home equity as collateral instead of your home. Home equity lines and your standard mortgage adhere to the same general repayment regulations, but the differences can mean huge monetary discrepancies that you must take into account!

• The interest rate on home equity lines is tied in exclusively with the prime rate. This rate is different from the financial indexes standard ARMs use as their rate determinant, and in this difference are variations in stability and dependability. Be sure you know and are acquainted with the differences between the prime rate and other indices.
• The interest on your home equity line will be compounded daily, unlike your standard mortgage that is compounded monthly. A daily compounded interest means a HELOC is more susceptible to rate fluctuations, and your rate can change almost instantly.
• Home equity linesdo not have adjustment caps! While standard mortgages have limitations to the amount of adjustment between interest periods, an HELOC does not. The rate for your line can fluctuate up and down as much as it may up to its maximum rate of 18%.

The exposure to rate fluctuations is the biggest disadvantage of your home equity lines. But knowing these risks and preparing for the worst will help you make an informed and responsible financial decision. Which is what we're all about, helping you with your important home equity decisions.

Shopping around for home equity lines

Countrywide, home equity lines adhere to the same rate, and they basically maintain a generic form. How do you choose one from the others when they all, at the outset, appear the exact same? The key word here is appear, and appearances can be deceiving. Lenders are required by law to advertise the APR for their loans. They are not, however, obliged to divulge the margin they add on to that APR. This margin is the single biggest variable between home equity lines of one lender and those of another. Ask your lender - ask every lender - what their margins are and make your decision based on the best margin and interest rates and terms for your loan.

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