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Line of Credit Questions

There are various forms available for lines of credit. Individuals involved in any aspects of a line of credit have had many questions throughout the process. Uncertainties of what the advantages of a home equity line of credit are or if a surviving spouse can still draw funds from a line of credit after their spouse dies often lead to questions like the ones answered below by Experts.

Should I pay off the line of credit balance or credit card balance first?

Case Details: Line of credit is $28,000 with an interest rate of 5.75%. Credit card is $17,000 with an interest rate of 9.96%. 

If you would like to save the most money then you should pay off the credit card balance first. You would be saving 4.21% in interest per year by paying of the credit card. The line of credit has a smaller interest rate therefor hold on to that one.

Is getting a home equity line of credit a good idea?

Obtaining a home equity line of credit can be a good idea. Home equity lines of credit can in some case fare better than refinancing the main mortgage. An advantage to getting an equity line of credit instead of refinancing is a low to no closing cost. You can also utilize a line of credit similar to a credit card, as you pay down the balance you can reuse the money again. Interest payments on a line of credit are generally tax deductible just like with a regular mortgage. The main disadvantage to getting an equity line of credit is that you are borrowing against the equity in your home. If you cannot make the payments on the equity line of credit you home is in jeopardy of foreclosure.

Should I pay down the mortgage or equity line of credit to qualify for a home refinance?

Case Details: Both the mortgage equity line of credit equal more than the house is worth. Both have low interest rates, but the Line of Credit (LOC) has a lower one. 

Even though the Home Equity Line of Credit (HELOC) may have a lower interest rate it is typically wiser to pay it down for good chances for a refinance. The HELOC being paid down will free up more equity in your home as well as reduce the monthly drain on your cash flow. Freeing up more equity in your home will make qualifying for the refinance a bit sooner and quite possible allow for a lower interest rate on your mortgage.

If an individual has been denied both home equity line of credit and refinance how can they receive a refinance?

Just because the individual has been turned down by the more traditional routes does not mean that all hope is lost. Housing Urban Development (HUD) has a program called 203(k) that is geared toward home improvements that will allow the individual to stay in their current home. There are many lenders that work with individuals with the HUD program. These lenders know that the HUD 203(K) program is typically for those that have a hardship that’s why it is a different route than someone’s traditional lenders with whom the individual was denied.

If a spouse died, can an the surviving spouse draw additional funds on their line of credit even though their spouse is no longer living?

Case Details: The line of credit on the house is not fully drawn on. 

If married individuals jointly sign a line of credit on their house and one of them dies then the surviving spouse would still have access to that line of credit. The surviving spouse being on that line of credit before the death of their spouse can still draw funds from the line of credit account.

Gathering good information and having a clear understanding about a line of credit can help when faced with circumstances regarding lines of credit. Experts can help answer if it is more beneficial to pay off a line a credit versus a credit card or if a surviving spouse can still draw on a home equity line of credit. Get the answers fast and affordably by asking an Expert.

Ask a Financial Professional

Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: General
Satisfied Customers: 2184
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
43581946
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Rakhi Vasavada
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Recent Line of Credit Questions

  • Here is my question: I need the solution in an excel spreadsheet.

    Here is my question: I need the solution in an excel spreadsheet.
    Balance Sheet:
    Cash $1080
    Receivable 6,480
    Inventories 9,000
    Total Current Assets $16,560
    Net fixed assets 12,600
    Total Assets $29,160
    Accounts payable $4,320
    Accruals 2,880
    Line of Credit 0
    Notes payable $2,100
    Total current liabilities 9,300
    mortgage bonds 3,500
    common stock 3,500
    Retained earnings 12,860
    Total liabilities and equity 29,160
    Income statement:
    Sales 36,000
    Operating cost 32,440
    Earnings before interest and taxes 3,560
    Interest 460
    Pre-tax earnings 3,100
    taxes (40%) 1,240
    Net income 1,860
    Dividends (45%) 837
    Addition to retained earnings $1,023
    a. Suppose 2014 are projected to increase by 15% over 2013 sales. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2014. The interest rate on all debt is 10% and cash earns no interest income. Assume that all additional debt in the form of a line of credit is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retained earnings. Assume that the company was operating at full capacity in 2013, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also assume that assets, spontaneous liabilities, and operating cost are expected to increase by the same percentage as sales. Determine the additional funds needed.
    b. What is the resulting total forecasted amount of the line of credit?
    c. In your answers to parts a and b, you should not have charged any interest on the additional debt added during 2014 because it was assumed that the new debt was added at the end of the year. But now suppose that the new debt is added throughout the year. Don't do any calculations, but how would this change the answers to parts a and b?
  • Lane, OK, here's the scenario. My wife and I have been

    Lane, OK, here's the scenario. My wife and I have been married 2 years. She is from Mexico and has no income, she is a legal resident. I am a school teacher with a good enough income to support her but not to pay medial insurance which would be 800 dollars per month through Obamacare. One month ago she had an allergic reaction to vicodin. The cost of ambulance and hospital etc., has come to 5000 dollars. We cannot pay it. I wish to protect our house. I've decided, without consultation, to receive a quick claim from her to get her name off of the loan house. Actually, I think I am on the loan and she is on the deed. Anyway, then I would file bankruptcy in my name, so that the house, our only asset, would be protected from our / her only creditor, the medical personnel associated with her trip to the hospital. So, does this seem plausible?
  • Do you know of national or even regional jewelry companies

    Do you know of national or even regional jewelry companies that offer reasonable credit terms. My credit is fair, in the lower 600 range, I qualified for a Jared card but would like a $(###) ###-####credit line with another jewelry group/company without very stringent requirements.Thank you
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