Home Equity Loans Vs. Home Equity Line of Credit

Home equity loans are types of loans in which the borrower uses the equity of a home as collateral. The loan amount is then determined by the actual value of the property, which is in turn determined by an appraiser from the lending institution.

 

These loans are often used to finance major expenses including home repairs, medical bills, college educations, legal expenses, and pay back auto debt, which currently affects 43% of the entire adult population in the United States.

 

It’s important to note, however, that there are often extra payments and fees associated with equity loans. Here are some fees that could apply for home equity loans:

 

  • Appraisal fees
  • Annual or membership fees
  • Originator fees
  • Inactivity fees
  • Title fees
  • Early pay-off fees
  • Closing fees
  • Stamp duties
  • Arrangement fees
  • Surveyor fees
  • Valuation fees
  • Conveyor fees

 

You could also be approved for a home equity line of credit for a maximum amount of available and only borrow what you need from the amount. This option enables borrowers to receive money multiple times after approval. You will be able to make small payments early on, but eventually you’ll have to start making full payments in order to eliminate the loan.

 

Home equity line of credit loans differ from conventional home equity loans in that the borrower is not advanced the entire sum up front, but utilizes a line of credit for borrowing, similar to a credit card. Additionally, another important difference from conventional equity loans is that the interest rate, typically based on an index, is variable. These loans were quite popular in the U.S. during the early 2000s, mainly because interest paid was deductible under federal and many state income tax laws.

 

This type of credit is available for up to 30 years, typically at a variable interest rate. The minimum monthly payment can be as low as only the interest that is originally due.

 

Both types of loans can work great depending on your circumstances. Make sure you’re taking every financial decision seriously and consult with professional advisors. If you want to learn more about home equity and personal loans, loan calculators, and the mortgage sector as a whole, give us a call today.

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