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A Home Equity Loan Or A Home Equity Line Of Credit


									A Home Equity Loan Or A Home Equity Line Of Credit?
When you need the cash out of the equity in your home, you may find that
there are a few choices that are before you. Should you go with a home
equity loan, or would a home equity line of credit (HELOC) be better?
Here are some features of both to help you decide which one may be better
for you.
If you are certain that you would like the cash out of your equity in one
lump sum, then a home equity loan would be the better option for you.
This means that if you know that you want the equity right away and have
a purpose (or more than one) that you need the money for, then this would
be the way to go. The cash from a home equity loan, or a home equity line
of credit can be used in any way you want. If you want to pay for a
family member's college education, or get a boat, fix up your home or
make an addition, or travel, then this could be your ticket.
A home equity loan is a second mortgage, and you will often be given up
to 15 years to repay the loan - or more. It is usually in the form of an
adjustable rate mortgage, but you can also find lenders who will give you
fixed rate, too.
A home equity line of credit, though, will give you a few options that a
home equity loan will not - if you do not need the cash all at once - or
are not sure if you need it all. A HELOC is also a second mortgage, but
instead of getting all the cash up front, you are given a line of credit
and a credit limit. A credit card, or a checking account gives you the
access to the funds - as you need them.
Generally, you must make a minimum draw right away and then you start
paying the interest on a monthly basis of the amount you have withdrawn.
This is a major difference right here. You only pay interest on the
portion of the money that you have actually withdrawn. So if you do not
use it all, then your monthly payments and interest are lower. The
interest is often calculated daily, and so each month will see a
different size payment. You are also given a limited time to withdraw the
funds - often around 11 years.
A HELOC is usually calculated on a 25 or 30-year term, and this is broken
down into two periods - the draw period and the amortization period.
During the draw period, you use the funds as you see fit. But at the end
of the draw period, the time for amortization begins. You cannot draw out
any more money, but your payments are recalculated and you begin paying
off the loan.
There are several ways that you might do this, though, and you need to
know which one will apply to your mortgage before you sign. It is
possible that there could be a balloon payment at the end of the draw
period. This would require that you refinance. Other terms may simply be
monthly payments for the balance of the full-term, or other arrangements
may be possible, too.
Only you can know which one, either a home equity loan, or a home equity
line of credit, will be better for your needs. Whichever way you decide
to go, though, be sure to get several quotes and then compare them
carefully to know which one is the best deal. There may be quite a bit of
difference in the interest rates and other terms - some are good and some
just plain are not good.
Joe Kenny writes for, offering home equity loans, or read the
article on whether a HELOC right for you
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