A Home Equity Loan Or A Home Equity Line Of Credit?

by Joseph Kenny
When you need the cash out of the equity in your home, you may find that there are a few choices that are before you. Should you go with a home equity loan, or would a home equity line of credit (HELOC) be better? Here are some features of both to help you decide which one may be better for you.

If you are certain that you would like the cash out of your equity in one lump sum, then a home equity loan would be the better option for you. This means that if you know that you want the equity right away and have a purpose (or more than one) that you need the money for, then this would be the way to go. The cash from a home equity loan, or a home equity line of credit can be used in any way you want. If you want to pay for a family member 's college education, or get a boat, fix up your home or make an addition, or travel, then this could be your ticket.

A home equity loan is a second mortgage, and you will often be given up to 15 years to repay the loan - or more. It is usually in the form of an adjustable rate mortgage, but you can also find lenders who will give you fixed rate, too.

A home equity line of credit, though, will give you a few options that a home equity loan will not - if you do not need the cash all at once - or are not sure if you need it all. A HELOC is also a second mortgage, but instead of getting all the cash up front, you are given a line of credit and a credit limit. A credit card, or a checking account gives you the access to the funds - as you need them.

Generally, you must make a minimum draw right away and then you start paying the interest on a monthly basis of the amount you have withdrawn. This is a major difference right here. You only pay interest on the portion of the money that you have actually withdrawn. So if you do not use it all, then your monthly payments and interest are lower. The interest is often calculated daily, and so each month will see a different size payment. You are also given a limited time to withdraw the funds - often around 11 years.

A HELOC is usually calculated on a 25 or 30-year term, and this is broken down into two periods - the draw period and the amortization period. During the draw period, you use the funds as you see fit. But at the end of the draw period, the time for amortization begins. You cannot draw out any more money, but your payments are recalculated and you begin paying off the loan.

There are several ways that you might do this, though, and you need to know which one will apply to your mortgage before you sign. It is possible that there could be a balloon payment at the end of the draw period. This would require that you refinance. Other terms may simply be monthly payments for the balance of the full-term, or other arrangements may be possible, too.

Only you can know which one, either a home equity loan, or a home equity line of credit, will be better for your needs. Whichever way you decide to go, though, be sure to get several quotes and then compare them carefully to know which one is the best deal. There may be quite a bit of difference in the interest rates and other terms - some are good and some just plain are not good.

About the Author

Joe Kenny writes for Rebuild.org, offering home equity loans, or read the article on whether a HELOC right for you
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What Is Home Equity Line Of Credit (HELOC)

by Tradepla
Owning a house is the greatest American dream. Additionally, having a house to save you from monetary needs adds up to the benefits of owning the greatest American dream.

You have tightened your belt during the time you are saving for your house. Now, that you have enough equity in that property, you may loosen up a bit by making use of your equity through home equity line of credit.

Home equity line of credit or HELOC, can help you in myriad of financial necessities. It can help you have a fund when you need it and for whatever purpose you may need it.

Although, you should be careful because putting your house as collateral may cause you to loose your house if you fail to pay your debt. This should make you think many times before you embark on taking money through home equity line of credit.

However, if your purpose of taking out money by means of home equity line of credit is to pay for medical bills or children 's college education, these expenses are inevitable. Thus, taking out money by means of home equity line of credit can be your best bet.

Additionally, if you want to consolidate your debt, HELOC or home equity line of credit may also be beneficial. This is because compared to credit cards and other unsecured credit facilities, the interest rate in a home equity line of credit is somewhat smaller. Another benefit of this means of taking out money is that consumer credits interests are tax deductible.

However, having said the benefits you may have from acquiring a credit through home equity line of credit, you may also need to look at the possible consequences if you fail to pay your debt.

The most important consideration is the possibility of loosing your house to pay off the debt.

It is thus recommendable that while you are considering the flexibility of a credit line, if you need a lump sum fund, you may consider taking out a Home Equity Loan instead. This is because in a home equity loan, you pay the interest and part of the principal debt regularly.

This is in contrast to the variable interest rate that applies in a home equity line of credit. Additionally, in a home equity credit line, your payments balloons at the end when you need to pay the principal amount of debt.

The flexibility of the home equity line of credit extends up to paying only the interests and paying the entire principal loan at the end of the term.

This makes it quite hard, and if you are not ready for such balloon payment, the risk of loosing your house is intrinsic in this case.

This is the reason why financial experts recommend that before you sign any contract that puts your house as collateral, you may need to scrutinize yourself a bit.

-Will you need the money lump sum?
Ask about home equity loan.

-Do you need fund periodically?
Ask about home equity line of credit.

Consider also asking for payments terms, interest rates and what conditions will make the lender consider you in default. These questions once answered may help you realize if putting your house as collateral is the best solution to your monetary needs.

There are other credit facilities, for this reason, you may need to do your research first before deciding.

Various debt management websites can help you understand the eccentricities of financial management that will help you avoid loosing your most precious asset.

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