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Home Equity Line Of CreditProper use of a Home Equity Line of Credit Takes DisciplineA home equity line of credit can help you access some extra cash. If this is something you're contemplating, carefully examine your options and offers before you go for it. A home equity line of credit acts like a blank check. Instead of having the funds in a bank account, they consist of the equity built up in a home -- a portion of each month's check usually goes against the interest and the rest goes against the principle. In the early years, more is applied to the interest, but as time goes by, more of it becomes equity or cash. Homeowners also build equity when they make their mortgage payments or their house appreciates in value. Most mortgage lenders let people access their equity either by refinancing or by giving them a home equity line of credit. When they refinance, the homeowner is required to receive a new appraisal. Since the home is likely to be worth more than it was at the time of the first mortgage, the new loan will be larger and the difference counts as equity. As long as the homeowner owes money, the lender owns the title to the house. Lenders are happy to let borrowers use equity because they get interest on all outstanding money. In many cases this is a smart idea because the interest rate will be lower than the standard APR on credit cards. In the case of refinancing, they write a whole new mortgage. With a home equity line of credit, they charge interest on the outstanding balance against the line in addition to the mortgage. Someone that doesn't understand how all this works may see the equity in their home as their own. A home equity line of credit is just a way to use it as extra cash. On the other hand, the financially savvy homeowner will put it to good use. That means they'll use the money to make more money and pay what they take as soon as possible to cut down on additional interest charges.
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