Home Equity Loans vs. Line of Credit

To access the equity in your home you could potentially use home equity loans or home equity lines of credit. Either option can get you the money that you need in a timely manner. You can avoid selling your house and still get your hands on the money that you require. While they both accomplish the same end goal, the way they go about it is different. Here are a few things that you need to know about home equity loans and home equity lines of credit.

Home Equity Loans

Home equity loans are a more fixed way to borrow the equity in your home. With a home equity loan, you are taking a loan for a certain amount of money on the front end. The bank will give you a certain amount that you can borrow up to. Then it is up to you to decide how much you want to borrow. They will give you all of the money upfront and you are free to use it how you see fit. Once you get the money, the repayment period will immediately begin. You will have to start making payments from the very first month of the loan. In most cases, the payment will be a fixed amount for the life of the loan. A typical loan term is 10 years, but you can find programs that are for different terms. 

Home Equity Lines of Credit

With a home equity line of credit, you are still accessing your home equity funds but it is set up a little differently. With this type of loan, you are given a credit line at the beginning. The bank will set up a credit line with a specified limit for you to use. You may or may not have to take anything out at the beginning of the term. However, you will never have to use the entire amount all at once unless you want to. 

You will be given some way to spend the money when you need it. You may have a checkbook that is tied to the account or a debit card. If you need to spend some of the money, then you are free to do so. If you do not need the money, you can just leave the account as it is. Sometimes, people open a home equity line of credit and never end up using it. It can be there as a safety net for you if you want. 

You will have a draw period and a repayment period with a home equity line of credit. During the draw period, you can use all of the money up to the limit and it accrues interest. Once you hit the repayment period, you have to start paying back all of the money that you borrowed with interest. The interest rate on a home equity line of credit is typically a little higher than you can get from a fixed home equity loan. 

 

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