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May 09, 2006
What Is a Secured Personal Line of Credit?
A Personal Line of Credit can either be secured or unsecured. That is, with or without collateral being offered as security for the loan. A secured Personal Line of Credit can mean significantly lower interest costs. When a PLC is secured with equity in your home, it is often referred to as a "home equity line of credit" (HELC) and sometimes as a "collateral mortgage." If you have equity in your home in excess of the current market value of the property less any outstanding debt, you can use that equity to secure your personal credit line . For example, if you have a home worth $170,000 and an outstanding mortgage of $100,000, you would have $70,000 in equity.
When you use your home to secure a line of credit, the equity must usually equal a minimum of 30 percent. That means that outstanding debt registered on the property, including the PLC limit, cannot exceed 70 percent of the appraised value of the property.
Cathy and Robert have a home worth approximately $200,000 and an annual family income of $65,000. Their outstanding mortgage is $100,000. That means Cathy and Robert would qualify for a home equity line of credit of $40,000: 70% of $200,000 = $140,000 less outstanding mortgage of $100,000 = $40,000
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