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Home equity loans and lines of credit give homeowners easy access to their home’s available equity for any need. Although these two loan products are similar, they are unique in several areas. Before reaching a decision, make sure you fully understand both options. Home prices are always on the move. The difference between a home’s market value and any outstanding loans(s) is referred to as available equity. For example, if a home’s market value is $300,000, and you owe $150,000, your available equity is $150,000. With either a home equity loan or line of credit program, the homeowner can choose to access some or all of their home’s available equity up to the home equity lender limits.What’s a Home Equity Loan?Home equity loans are very similar to many consumer loans. Consumer loans are usually secured with property that has collateral value. With a home equity loan, your house serves as that collateral.
Such loans offer potentially low fixed rates (home equity loan interest rates remain at historic lows right now) and up to a 15-year amortization period. The homeowner receives a lump sum payout at closing and it’s up to him or her to decide how to use. As with most loans, the borrower can pay off the loan quicker if they wish usually without a pre-pay penalty.What’s a Home Equity Line of Credit?As with equity loans, home equity line of credit loans are available based on the home’s available equity. But, instead of receiving cash at closing, lines of credit are basically setup as revolving accounts. For example, with a $60,000 home equity line of credit, a revolving account is established by the lender, and the borrower can draw against the credit line at any time..Such credit lines are like credit card cash advances. However, underlying interest rates are much better since the home is serving as collateral. Once cash is withdrawn, the borrower usually is required to make a minimum monthly payment with a payback period of usually 10 years.
