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Lines Of Credit vs. Home Equity Loans
Recently obtaining cash from one's home has never been
simpler for homeowners. There has been a recent flood companies offering home equity loans.
To make Home repairs and additions come true, more and more
Americans are looking toward lines of home equity credit and traditional home equity loan ( also known as second
mortgages).
Americans need to consider multiple things prior to utilizing either of the above two financing products.
Home equity lines of credit usually are appropriate for people who need a lower beginning rate and availability to money at
unpredictable times.
Home equity loans are more appropriate for those who need specific amounts of cash with payment stability.
Home Equity Loan vs. Line of Credit
The biggest difference between these loans is the
method in which you receive your money. Using a home equity loan, you
receive the whole amount of money at closing. Using a home equity line of credit, one can barrow cash when needed, up to a pre determined amount of credit.
See the following chart for additional details
| |
Home Equity Line of Credit |
Home Equity Loan |
|
Loan Funds Availability |
Borrow
money when needed. You can borrow
up to the stated credit limit. When you pay down principal it is added
back onto the balance of your credit line to be used later. |
Receive entire loan amount at closing in a lump sum. You
can not reuse this loan amount after principal is paid back. |
|
Interest Rate |
Variable
rate: beyond
the first monthly billing cycle, your interest rate is
determined monthly, usually determined by the prime rate, when posted in
The Wall Street Journal, in addition to a operational margin. |
Fixed rate,
Interest and payment stays same. |
|
Payment |
Monthly
payments vary with interest rate and amount of principal which has
been borrowed.
These loans have a draw period, usually of 5 or 10 years, durring this
time you have the option to pay only the interest, however beyond the
draw period you must repay the principal and interest to pay down the
loan within the remaining years. |
Interest and
principal payment stay the same during the loan term. |
|
Loan Advances |
Simply wirte
a bank draft for $250.00 or more |
Entire amount
is received at closing |
|
Rate Advantages |
Less interest rates than your unsecured credit lines such
as credit cards.
|
Lower
payment options are available due to a variety of terms. |
Tax Advantages
(Ask your tax advisor.) |
Interest may be 100% tax-deductible. |
Interest may be 100% tax-deductible. |
|
Other Advantages |
Appropriate
emergency fund for unexpected emergencies or expenses. |
Great option
for single planned expense or to consolidate debts. |
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