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The difference between home equity loan and home line of credit.
By Stefano Sandano
Once you have built up in your home, you have the privilege of applying for a home line of credit, which allows you to borrow the money you need.
Most financial insititutions ( banks, savings and loans ) have entered the home market, so you have plenty of options when you shop for the best loan.
In effect, a home loan is a second mortgage on your home. You usually get a line of credit up to 70 percent or 80 percent of the appraised value of your home, minus whatever you still owe on your first mortgage.
For example, if your home is worth $100,000 and you owe $20,000 on your mortgage, you might receive a home line of credit for $60,000 because your lender would subtract your $20,000 owed on the first mortgage from your $80,000 worth of equity.
You will qualify for a loan not only on the value of your home but also on your creditworthiness. For instance you must prove that you have a regular source of income to repay a home loan.
The difference between the two kind of credits is easy: the home loan has a fixed rate and the home line of credit has a rate that fluctuate and it's better indicate to consolidate other debts than the credit cards.
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The home line of credit is an " on demand" source of funds that you can access and pay back as needed.
You only pay interest if you carry a balance because these line of credits are essentially a revolving line of credit, like a credit card but with a much lower rate because the line of credit is secured by your home.
Like other mortgages, the home loan requires you to go through an elaborate process to qualify for an open line of credit. You will usually need a home appraisal and must pay legal and application fees and closing costs.
Because a home loan is backed by your home as collateral, it is considered more secure by lenders than unsecured debt, such as credit card debt. Further, because the loans are less risky for banks, you benefit by paying a much lower interest rate than you would on credit cards or most other kinds of loans.
Home loans can therefore offer extremely attractive rates when the prime interest rate is low, but subject you to much higher interest costs if the prime shoots up.
You can tap the credit line simply by writing a check, and you can pay back the loan as quickly or as slowly as you like, as long as you meet the minimum payment each month.
Stefano Sandano is a home equity loan expert and you can get more information about home equity loans tips on www.homequity-loan.com
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