Deciding Between a Home Equity Loan and Home Equity Line of Credit

January 5, 2010

Home equity loans and home equity lines of credit are worthwhile tools that offer homeowners easy access to cash for any purpose. Although similar, there are key differences that make these home equity products unique. You should clearly comprehend both options before tapping into your home’s available equity for your next home improvement project, purchase of a new car, etc..

Home market values are in a constant state of flux. The difference between a home’s market value and any outstanding mortgage(s) equals the available equity. For example, if a home’s value is estimated at $280,000, and you owe a mortgage lender $180,000, the available home equity equals $100,000. With either a home equity loan or line of credit, the homebuyer may choose to access all, or part of the home’s equity.

What is a Home Equity Loan?

Home equity loans are comparable to other forms of personal loans. In most cases, personal loans are secured with a vehicle title or some other piece of property as collateral. With a home equity product, your house is the collateral.

Most home equity loans come with fixed rates and payments are usually amortized over 15 years. The homeowner receives the funds in a lump sum and after closing the funds can be used for any purpose. As with most loan products, the homeowner can decide to pay the loan quicker than the amortization period.

What is a Home Equity Line of Credit?

As with home equity loans, lines of credit are also based on the home’s available equity. However, instead of funds being supplied in a lump sum, credit lines are essentially revolving credit accounts. For example, if approved for a $150,000 credit line, a revolving credit account is established for this amount, and homeowners are free to withdraw funds up to this limit as necessary.

Lines of credit are similar to credit card cash advances. However, the rates are much more favorable. Once money is withdrawn, payoff must be completed with 10 years normally. Since line of credit rates are variable (using some factor of either the prime rate or LIBOR), payment amounts can and do change.

If you’re shopping for a home equity loans or home equity line of credit Easy-Home-Equity-Loans.com can help. Check out our website for today’s offerings, helpful articles and tips on securing the best home equity product for your needs.







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