Saving money with a home equity line of credit calculator

With every mortgage payment, you’ve invested more valuable equity in your home. Depending on the amount of that equity, you could borrow cash to pay for home renovations or college tuition, or to consolidate high-interest credit card debt. How much can you borrow? Use our handy home equity line of credit calculator.

There are two basic types of home equity loans: the second mortgage and the home equity line of credit (HELOC) loan. A second mortgage is paid in a single lump sum, while a HELOC typically works more like a credit card account, allowing you to withdraw funds as needed. You repay a second mortgage at a fixed monthly amount; payments on a HELOC are determined by how much you have borrowed against your credit line, and the current interest rate.

Since HELOC rates are generally adjustable, a home equity line of credit calculator can help you estimate the amount of your monthly payments and budget for the change in your expenses. Often, the interest rate on this type of loan is substantially lower than that of a credit card account. If you use the HELOC to consolidate debt and pay off your credit cards, your overall monthly payments could decrease. Improved cash flow means more savings for you.

Using a home equity line of credit calculator can also help you decide which type of loan to choose. You may find that your needs are better served with the predictability of a second mortgage. Since the interest rate is fixed, your payments will never increase.

On the other hand, if you are paying for expenses over a lengthy period of time (for instance, four years of college tuition) and do not need to get all the cash at once, a HELOC could be the smart choice. After all, you only make HELOC payments based on the amount you’ve borrowed – not the total amount you are qualified to borrow.

Here’s an example of how the home equity line of credit calculator works: Say you’d like to borrow against your equity to consolidate some debt and contribute toward your daughter’s wedding expenses next year. The amount you can borrow depends on the appraised value of your home and the balance due on your mortgage. If your home is appraised at $400,000 and you owe $235,000, you could qualify for an $85,000 credit line.

By www.homeloancenter.com