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Equity Line
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EQUITY LINE

 

In many instances where actually taking the money out immediately by refinancing or obtaining a new loan is not the best course of actions, i.e., the owner has not yet decided how to use the fund,  Loan Village can help arrange an equity line or a credit line secured by real property(ies), often without any fee to the client until he/she starts using the money.

What is an equity line?  An equity line can be best analogized to a credit card secured by a real estate.   You do not need to pay any interest until you actually use the money.

What is a disadvantage of having an equity line v. a credit cardA credit card is often unsecured or if secured, it is secured by the merchandise/good purchased with the credit card.  If the borrower does not pay, the lender must sue the borrower in a court of law and obtain a judgment before taking over the borrower's non-exempt real estate and/or attaching the borrower's wages. On the other hand, an equityline is secured by a real estate.  If the debtor does not pay, the lender has two options: 1) proceed in the same manner as the credit card's lender i.e., sue the borrower in a court of law, OR 2) foreclose on the real estate without going to court.

What is an advantage of having an equity line v. a credit cardThe true interest rate for an equity line is substantially lower than the rate for a credit card . 

What is a benefit of having an equity line v. a loanThe borrower does not have to pay any interest for the unused portion of the loan which may be substantial.  For instance, the borrower who needs to borrow $100,000 to make an improvement on a house but will use only a small portion at a time over a long period of time, may obtain a $100,000 equity line and write a check for that small portion of the $100,000 equity line when the borrower needs it.  If the borrower earns extra income, she/he may pay down the equity line and will not need to pay any interest on that portion which she/he paid down and the unused portion.  If the borrower takes out a loan and uses only 50% of that loan, he/she would be paying 200% of the rate stated on the loan.  Even if the borrower put the unused portion of the loan in a saving account, the interest rate on the saving account is so low that the effective rate on the loan  would still be close to 200% of the rate stated on the loan.

 


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Last modified: 07/30/04