April 20, 2007, Newsletter Issue #61: Take The Max with Your Home Equity Line of Credit

Tip of the Week

There are many things that people do not know about home equity lines of credit. One of the least understood things is that the more money you borrow and draw out of the line, the lower the initial rate you can lock. Lenders will compensate a large loan with a lower rate and anyone who is taking out a home equity line of credit should take out the maximum so that they can get the best rate possible.

There is another little known fact that relates directly to the previous one. Not only should you draw out the maximum in order to get the best rate, but you can almost immediately turn around and pay the entire amount back if you like and carry a zero balance on the loan while keeping the rate. The only penalties with a typical home equity line of credit involve closing out the line. There is a difference between paying off the balance and closing the account. While you are welcome to carry a zero loan balance for as long as you like without penalty, if you choose to close the account, you may be subject to a prepayment penalty.

If you are looking into a home equity line of credit, ask your broker about how you can get a lower rate by drawing out more equity. It is an option that will make the most sense in the end.

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