Home equity loans and lines of credit are powerful tools that give homeowners simplified access to cash to use however they wish. Although alot alike, there are several key items that differentiate these home equity products. Make sure you clearly understand both products before tapping into your home's 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 Makes a Home Equity Loan Unique?
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.
Benefits of a Home Equity Line of Credit?
As with home equity loans, home equity lines of credit are offered based on the home's underlying equity. But, instead of a lump sum payout, lines of credit are basically revolving credit accounts. If granted a $50,000 home equity line of credit, a revolving credit account is setup, and homeowners may withdraw funds up to this maximum 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 Once money is withdrawn, payoff must be completed with 10 years normally.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. - 29904
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 Makes a Home Equity Loan Unique?
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.
Benefits of a Home Equity Line of Credit?
As with home equity loans, home equity lines of credit are offered based on the home's underlying equity. But, instead of a lump sum payout, lines of credit are basically revolving credit accounts. If granted a $50,000 home equity line of credit, a revolving credit account is setup, and homeowners may withdraw funds up to this maximum 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. - 29904
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