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There might be various reasons for you to tap into your home equity. While some people borrow against their home equity in order to replace a high-interest credit card debt with low-interest home loan, there are others who use their home equity to fund home improvements. Then there are people who just feel more secure when they have an easily accessible line of credit. So, you might either go for a home equity loan (also abbreviated as HEL) or a home equity line of credit (HELOC).
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Choosing between a HEL and a HELOC:
If you are looking to payoff high-interest credit card debt, you would want a lump sum amount right away. A home equity loan would be more suited to you in such a case. The home equity loan rate is much lower than the credit card interest rate (and so is the HELOC rate); but since you are looking for a lump sum amount, a HEL would be more suited.
On the other hand if you are looking to get that secure feeling (through an extra line of credit) or undertake home improvements over an extended period of time or just need some easily accessible cash from time to time (to pay bills or whatever), a home equity credit loan (HELOC) would be the right choice.
Differences between a HEL and a HELOC:
In order to make the right choice between a HEL and a HELOC, it is very important to know the differences between the two. So, let’s get going and compare a home equity loan vs. a line of credit (HELOC).
Here are the top four differences between a home equity loan second mortgage and a HELOC loan:
1. A HELOC loan, as the name suggests, is a line of credit that you get against your home equity. This means that a HELOC loan is like a credit card with a pre-defined credit limit. This credit limit is based on the appraised value of your home equity. With a HELOC, you can draw funds whenever needed (subject to a maximum credit limit). In comparison, a home equity loan second mortgage will give you a lump sum amount.
2. A HELOC loan will require you to make a minimum payment every month (just like credit cards) and pay the full amount as and when you wish. However, you will need to pay interest on the borrowed amount till the time you pay it in full. The minimum payment amount for a HELOC credit will depend on the amount borrowed by you through a HELOC. In comparison, a home equity loan will need you to pay a fixed amount every month over a period of time (the tenure of loan). Depending on the type of home equity loan i.e. fixed rate home equity loan or adjustable rate HEL, the monthly payment amount might change (in the case of adjustable rates) but not very frequently. A home equity loan calculator can help you make the choice between adjustable /fixed rate home equity loan.
3. The interest rate for a HELOC loan is generally lower than the interest rate on a home equity loan second mortgage. The lenders add a certain percentage as margin over the prime interest rates in order to arrive at the line of credit interest rate. This margin varies from one lender to another and is usually around 1%. The home equity loan second mortgage rates and HELOC rates are, however, higher than the first mortgage interest rates.
4. It would be interesting to note that a HELOC loan doesn’t usually have a closing fee even though the lenders might charge an annual fee. However, a home equity loan might have a closing fee; but this is generally lesser than the first-mortgage closing fee.
What does it take to get a HEL or a HELOC?
Home equity credit loans and HEL loans, both use your home equity value in order to make the credit-limit/ loan-amount calculations and the value of your home needs to be appraised in both the cases. Moreover, you also need to produce your income proof, home ownership proof and your mortgage proof. Your credit history, age and your financial profile are also used in order to arrive at your HEL / HELOC loan eligibility.
If you want to learn more about HEL, HELOC and other types of mortgage loans, you can visit websites like http://www.estreetloans.com. Using their vast network of lenders, you can even get the best quotes for mortgages, payday loans, personal loans and auto loans. And you can get the quotes in real quick time.
