Home Equity Line Of Credit verses Home Equity Loan
What is the difference between Home Equity Line Of Credit and a Home Equity Loan?
A home equity loan, also known as a (term) loan, is a “one-time” lump sum taken all at the same time, that is paid off over a set amount of time usually 10,15 to 20 years, with a fixed interest rate and the same payments each month. Once you get the money, you cannot borrow further from the loan unless you take out another home equity loan.
A home equity line of credit (HELOC) works just like a credit card. You are allowed to borrow up to a certain amount for the life of the loan, a time limit set by the lender.
A HELOC can be used as a “Piggyback” mortgage when purchasing a home. It can help you avoid the dreaded PMI or mortgage insurance when less than 20% down payment is available. Sometimes it is referred to as an 80-10-10 mortgage.
Whether it’s for home improvements, purchase second home, or a new boat, the money you need for is waiting for you with a Home Equity Line Of Credit or HELOC.
By using equity in your home, you may qualify for a sizeable amount of credit, available for use when and how you please, and at an interest rate that is relatively low. Interest paid on a HELOC is tax deductible.
A Home Equity Line Of Credit is revolving credit in which your home serves as collateral. With a Home Equity Line Of credit, you will be approved for a specific amount of credit - your credit limit or ceiling, the maximum amount you may borrow at any one time. A HELOC is like a bank account where you continue to write checks on the equity in your home as opposed to writing the checks based on actual money in the bank. A HELOC does not have a period in which it will be paid off, since you can continue to borrow against it, similar to a credit card. This is good in many ways but also can be harmful in the long run if you do not show good judgment. Home Equity Line Of Credit loans do have an early pay off penalty, normally a max of five years. This can be negotiated with the lender if refinancing with the same mortgage company you attained the HELOC loan from.
Written by admin on September 11th, 2006 with no comments.
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