Home equity loans and home equity lines of credit are useful tools that provide homeowners with easy access to cash for a variety of purposes. Although alike, there are several differences that make these home equity products unique. Make sure you understand both options before using your home's available equity for home improvement, 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 similar to other types of personal loans. In most cases, personal loans are secured with some piece of property that has inherit value as collateral. With a home equity product, your house is the collateral.
Most home equity loans offer low fixed rates and up to a 15-year pay back period. The homeowner receives cash in a lump sum and after closing the funds can be used for any purpose. As with ordinary loans, the homeowner may decide to pay the loan off faster than the amortization period.
Why Should I Choose 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 cash advances from a credit card. However, interest rates are much more favorable than those offered by credit card issuers. Once money is withdrawn, payoff must be completed within 10 years in most cases. Since line of credit rates are variable (using some factor of either the prime rate or LIBOR), homeowners should expect payment amounts to change. - 31387
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 similar to other types of personal loans. In most cases, personal loans are secured with some piece of property that has inherit value as collateral. With a home equity product, your house is the collateral.
Most home equity loans offer low fixed rates and up to a 15-year pay back period. The homeowner receives cash in a lump sum and after closing the funds can be used for any purpose. As with ordinary loans, the homeowner may decide to pay the loan off faster than the amortization period.
Why Should I Choose 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 cash advances from a credit card. However, interest rates are much more favorable than those offered by credit card issuers. Once money is withdrawn, payoff must be completed within 10 years in most cases. Since line of credit rates are variable (using some factor of either the prime rate or LIBOR), homeowners should expect payment amounts to change. - 31387
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