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 is a Home Equity Loan?
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.
What is a Home Equity Line of Credit?
As with home equity loans, lines of credit are also based on the home's available equity. However, instead of funds being supplied in a lump sum, credit lines are essentially revolving credit accounts. For example, if approved for a $150,000 credit line, a revolving credit account is established for this amount, and homeowners are free to 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. - 30462
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 is a Home Equity Loan?
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.
What is a Home Equity Line of Credit?
As with home equity loans, lines of credit are also based on the home's available equity. However, instead of funds being supplied in a lump sum, credit lines are essentially revolving credit accounts. For example, if approved for a $150,000 credit line, a revolving credit account is established for this amount, and homeowners are free to 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. - 30462
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