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..
Housing prices are always bouncing around. At any point in time, the difference between a home’s market value and any outstanding mortgage balance equals the equity. For example, if your home’s value is $380,000, and you have outstanding mortgage loans of $180,000, then your home equity equals $200,000. With either loan type, 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 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, home equity lines of credit are also based on the home’s underlying equity. But, instead of funds being received in a lump sum, lines of credit are essentially revolving credit accounts. If approved for a $50,000 home equity line of credit, a revolving credit account is established for this amount, and homeowners may withdraw funds up to this limit as necessary.
Lines of credit are like credit card cash advances in many ways. However, the rates are much more favorable and the homeowner can stretch out the payback period over a much longer period of time. Most credit lines have variable rates like credit cards (using some factor of either the prime rate or LIBOR), and as such, payment amounts can and do change.
If you’re in the market for a home equity loans or home equity line of credit Easy-Home-Equity-Loans.com can help. Visit out our website for today’s rates, helpful commentary and tips on securing the best home equity product for your needs.
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