In the real estate market, the equity of an individual’s home refers to the difference between the value of his/her property and the sum he/she owes to his/her mortgage lender. A home equity line of credit (HELCO) allows this owner to borrow money against his/her home equity to discharge mandatory debts or make certain voluntary purchases. This lending scheme permits him/her to have access to monetary resources up to a certain preset limit, which is similar to credit card payments. As this person repays the dues under this form of financial aid, he/she can use the credit again whenever the need arises. This is the reason why property experts call a home equity line of credit as a ‘revolving debt’.
Steve Liefschultz is a reputed banker and real estate expert from Minnesota in the United States. He is Chairman and the Chief Executive Officer of Equity Bank, a finance company he owes, operates and manages in the region. His corporate enterprise specializes offering cost-effective investment lines of credit and real estate loans to entrepreneurs, small business enterprises and individuals. This former lawyer and property broker realizes that banking and investments in the property market opens up new opportunities for his clients to build up their shareholder value.
He says the following reasons are responsible for the popularity of home equity line of credit among residential owners:
- Low interest rates and terms
The terms and conditions under a home equity line of credit are different from most fixed period mortgages. The variable interest rates under this lending scheme depend on the prime rate that banks charge to large corporate enterprises on short-term loans. This allows lenders providing this form of financial aid to their clients to offer minimum monthly interest payment alternatives on the amount they borrow. These individuals have the option to repay only the interest they accumulate on their loan amount for the first ten years. This goes a long way in enhancing their cash flow.
Under home equity line of credit scheme, a residential owner only repays the amount he/she uses to discharge a debt and not the sum he/she borrows. This implies that if he/she asks for a credit line of $50,000 but utilizes only $ 20,000, the owner only repay $20,000 and not the amount he/she borrows. This goes a long way in keeping the payments to a minimum as this individual only reimburses the money he/she actually utilizes.
- Portfolio expansion
In the case of home equity line of credit, a residential owner can use the monetary resources he/she obtains from one property to buy another one. This allows him/her to increase his/her portfolio by utilizing the funds he/she was not doing anything with and earning 12 % to 24% on the new property.
Steve Liefschultz goes on to explain that apart from the above benefits residential owners who intend to apply for a home equity line of credit need to remember a few important points. Like any other loan application, they have to fulfill certain guidelines and preconditions. This implies that they need to have a good credit score, high disposable income and low debt.