Posted on: 15th Nov, 2009 08:45 am
I have a 25K home equity line and owe 22k. We need about an additional 10K to complete our home improvements. My bank indicates that if I request a home equity line of 150K the interest rate will be lower and I do not need to use more than I need. Is this a good thing to do, will it hurt my credit rating to have such a large equity line. I do not plan to use more than 10k.
Hi sia,
"My bank indicates that if I request a home equity line of 150K the interest rate will be lower and I do not need to use more than I need."
I'm not sure how a 150k home equity line of credit will lower the interest rate. The more the amount of loan you borrow, the more the interest you end up paying in the long run. If you take an equity loan of 150k, you will have to pay more in interest over the life of the loan. Such a large amount of debt will not affect your credit scores, but it will surely affect your debt-to-income ratio. Moreover, the payments for such a large debt will also be high. In case, you cannot afford to make the monthly payments on the loan, it will affect your credit negatively. If you need only $10k, there's no need to go for a $150k loan. You can instead go for a personal loan, in case you do not get an equity loan of $10k.
Thanks,
Jerry
"My bank indicates that if I request a home equity line of 150K the interest rate will be lower and I do not need to use more than I need."
I'm not sure how a 150k home equity line of credit will lower the interest rate. The more the amount of loan you borrow, the more the interest you end up paying in the long run. If you take an equity loan of 150k, you will have to pay more in interest over the life of the loan. Such a large amount of debt will not affect your credit scores, but it will surely affect your debt-to-income ratio. Moreover, the payments for such a large debt will also be high. In case, you cannot afford to make the monthly payments on the loan, it will affect your credit negatively. If you need only $10k, there's no need to go for a $150k loan. You can instead go for a personal loan, in case you do not get an equity loan of $10k.
Thanks,
Jerry
let me clarify something. she is looking for an equity line. not a home equity loan. this means she would be approved for $150k but can draw just $10k if she wants. banks offer lower rates for larger lines. i think this is a good idea for her.
Generally speaking, a debt to available credit ratio of 25% or less is ideal; a ratio higher than that may exert a negative influence on your credit score, with the negative influence increasing the higher the ratio becomes. If you only spend $10,000 of your $125,000 available credit line, this credit line should improve your overall debt to available credit ratio, thereby improving your credit score.
But, make sure that you are not paying large commitment fees for the full amount, and are only paying interest on the portion that you are using. Also, be careful with your home equity line–overspending is easy when you have a large line of credit freely available to you. Due to the temptation to overspend, you need to consider your spending habits before taking out such a large credit line. If you can discipline yourself to spend only the $10,000 needed for the home improvements, then taking out a large equity line should not cause you any problems. However, if you have a tendency to overspend, having so much credit could cause you problems. As long as you do not use too much of the credit available on the HELOC, it should not have a negative effect on your credit score.
But, make sure that you are not paying large commitment fees for the full amount, and are only paying interest on the portion that you are using. Also, be careful with your home equity line–overspending is easy when you have a large line of credit freely available to you. Due to the temptation to overspend, you need to consider your spending habits before taking out such a large credit line. If you can discipline yourself to spend only the $10,000 needed for the home improvements, then taking out a large equity line should not cause you any problems. However, if you have a tendency to overspend, having so much credit could cause you problems. As long as you do not use too much of the credit available on the HELOC, it should not have a negative effect on your credit score.
commitment fees? i've never heard of such a thing on a home equity line of credit...
"only paying interest on the portion that you are using"??? a lender cannot charge interest on the portion that isn't being used - that would be so blatantly stupid and illegal as to put the lender out of business.
sorry, marga - the rest of your post makes sense (though i think our poster is pretty certain to be reasonable with spending - only needing $10K). of course, you never know...
"only paying interest on the portion that you are using"??? a lender cannot charge interest on the portion that isn't being used - that would be so blatantly stupid and illegal as to put the lender out of business.
sorry, marga - the rest of your post makes sense (though i think our poster is pretty certain to be reasonable with spending - only needing $10K). of course, you never know...
