Home equity loans and home equity lines of credit are worthwhile tools that offer homeowners easy access to cash for any purpose. Although similar, there are key differences that make these home equity products unique. You should clearly comprehend both options before tapping into your home’s available equity for your next home improvement project, 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 is a Home Equity Loan?
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 offer competitive fixed rates and payments that are amortized over 15 years. At closing, the homeowner receives the funds in a lump sum which can then be used towards any purpose. As with most loans, the homeowner may choose to pay the loan off faster than scheduled.
What is 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 cash advances from a credit card. However, interest rates are much more favorable than those offered by credit card issuers. Once money is withdrawn, payoff must be completed within 10 years in most cases. Since line of credit rates are variable (using some factor of either the prime rate or LIBOR), homeowners should expect payment amounts to 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. Check out our website for today’s offerings, helpful commentary and tips on securing the best home equity product for your needs.