3/27/2017

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A Home Equity Loan Or A Line Of Credit

Which One Is Best For Your Needs?

Just because the banking industry is in turmoil and the housing market is going through an era of declining values doesn't mean that all consumers have stopped borrowing. Many still have a need to borrow against the equity in their homes.

The reasons to take out a home equity loan or a line of credit varies depending on circumstances. A homeowner may decide to borrow enough money on his home to remodel. He may want to use the equity in his home to buy a new car or truck.

A small business owner may need to get a home equity loan or a line of credit to keep his business afloat. The big decision is making a determination as to which type of financing is best for his needs.

While the credit crunch has made borrowing for... or against... your home more difficult, home equity loans and lines of credit remain popular for those with equity.

Home Equity Line of Credit

A home-equity line of credit is a varible interest rate loan that works like a credit card. You get a pre-determined loan amount that is secured by your home. Most come with checks and credit cards that you can use to draw on as you need the money.

Most lenders only require an interest only payment for either 10 or 15 years. After that the loan must be paid in full. The reality is most people will sell their home and pay the loan off before it actually comes due. You could always refinance if you decide you want to stay in your home.

An important thing to remember on a home-equity line of credit is it is based on varible interest rates. These varible rates will cause your payment to change as the interest rates move up or down.

Home Equity Loan

A home-equity loan has a fixed interest rate and fixed payment. These loans are more like a standard second loan on your home. Like a home-equity line of credit, these loans are also secured by your home.

You borrow a certain amount of money for a specific period and get the whole sum at the close of the loan. The payments a on home-equity loan are typically based on 10 to 15 years and are level.

People who aren't comfortable with an adjustable or varible rate payment tend to favor a home-equity loan instead of a home-equity line of credit. As interest rates rise, these loans become more popular than home-equity lines of credit.

A home-equity loan will have a higher interest rate because it is fixed. Varible rate loans usually have lower starting interest rates. But if interest rates are rising, a varible rate could catch up or even get higher than what the fixed rate is.

 

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