Equity Line
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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 card? A 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 card? The 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 loan? The 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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