Home Equity Loan or Home Equity Line of Credit

If a homeowner is planning for a major repair or renovation at home, he has an option for a home equity loan to finance the costs for repair. Homeowners who have a home equity loan should learn the basics of this type of loan, so to know whether this is something they can use and, of course, pay for it.

Mortgage vs. Home Equity Loan

If you look closely, home equity mortgage loan is like that at home is used as collateral for the loan. But the similarities end. Home equity loans or home equity line of credit (more than HELOC) is more flexible than a mortgage in the amount to borrow and the terms of payment.

A house must not already have a lien (or an existing mortgage) in order to qualify for a mortgage application. With home equity loans, homeowners can opt for one with or without an existing loan. Although home equity loan sounds like a second mortgage, is not. It differs from the second mortgage in relation to the payment terms. A second mortgage has a fixed payment scheme and the interest, while a home equity loan is a flexible one.

What's more, the homeowner Home equity loans to borrow small amount of money, say the funding of a minor kitchen improvements. He can borrow small or large and pay short or long, such as a credit card.

Home Equity Loan vs. Credit Cards

If the home equity loan works like a credit card, why should a homeowner bother to know about home equity loans, if he could at any time a credit card to finance minor or major repairs at home?

Even if a home-equity loans and credit cards have many similarities, the former has more advantages compared to the latter. A Home Equity Loan-friendly homeowners. Interest rates are much lower, borrowers can apply for tax incentives and interest deductions under the Federal Act. Credit card owner does not benefit from this type of incentives and deductions.

Is it for you?

It is true that a home equity loan has many advantages. Apart from this, it is very easy to apply and get approved. However, this type of loan is not for everyone. A borrower of the obligation to purchase until the credit limit is reached, is not the ideal candidate for a HELOC.

Remember that the capital for this type of loan is a house. If a borrower compulsive and non-donors to pay within the specified date and the payment even after the extension of its payment terms would be his home projects.

This type of loan is best for people who have an immediate need for money - whether for a house to renovate or to pay for tuition - and expects money within the payment period.

When used as, a homeowner would come with a home-equity loans.

By: Joe Cline