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Home Equity Line Of Credit As A Home Improvement Loan


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After 10 or more years in a house you begin to notice the wear and tear about the place. Maybe the kitchen is looking a bit dated and you want to get a modern design. Or maybe you want to add value to the house by adding an extension, putting in a swimming pool or adding a solar powered energy system. Traditionally you would have to save up the money to finance this project or you could apply for a home improvement loan. Another way to finance the project is to get an home equity line of credit with your existing mortgage lender. This is both fast and convenient. This article will explain how equity line of credit works, some points to consider if you decide to take one out and some other alternatives if you need a cash boost for a home improvement project.

As the name suggests, you are given a certain amount of credit based on the amount of equity that you have in your home. Most lenders will lend up to 75-80% of the value of the house to the home owner. So if your house is worth $100,000 and you owe the mortgage lender $50,000 you could get a line of credit up to $25,000 to $30,000.

Once you have established a home equity line of credit loan you will be able to draw down on this value over a period of time that has been arranged with your lender. Thus if you are planning to add an extension to your house you can draw out an amount to cover the laying of the concrete slab. Then you can draw some more to pay for erecting the walls. Then you can draw some more for the finishing touches, like new windows or interior decorating. In this respect a home equity loan line of credit gives you the flexibility to secure a lump sum of money when you need it.

You can also use a line of credit for other things but it is important to be prudent with this money. Ultimately your house is securing the use of the money. If you can't repay the money you could lose your home. That is why people tend to use it for home improvement or even paying for education. It should be seen as using money to make more money in the long run. Home improvement and self education are good future investments.

The conditions that apply to an equity line of credit vary from lender to lender so it is important to shop around. Some points to consider before this however are the rate of interest that will be charged on the line of credit. If you have a variable home loan rate then the line of credit may be charged at the same rate. If you have a fixed rate, a rate for the line of credit will be worked out during the application. The rate you will be charged for the line of credit is probably the most important factor but you should also consider the application fees, closing costs and how long the line of credit lasts.

Another alternative if you need a lump sum is to go for a home equity loan or even a refinance mortgage. Both of these methods allow you to receive a one off lump sum of money that you can use however you see fit. For example, if you are quoted a price for a new swimming pool, you can get a new mortgage to cover this cost.

Get more information on raising cash for a home improvement project, including home equity refinance deals at Adrian Whittle writes on ideas for generating finance for home improvement and other investments.


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