Home Equity

A home equity loan or line of credit allows you to borrow money, using your home's equity as collateral.  Equity is the difference between how much the home is worth and how much you owe on the mortgage (or mortgages, if you have more than one on the property).  A home equity loan (or line of credit) is a second mortgage that lets you turn equity into cash, allowing you to spend it on home improvements, debt consolidation, college education or other expenses.

There are two types of home equity debt: home equity loans and home equity lines of credit, also known as HELOCs. Both are sometimes referred to as second mortgages, because they are secured by your property, just like the original, or primary, mortgage.

A home equity loan is a one-time lump sum that is paid off over a set amount of time, with a fixed interest rate and the same payments each month. Once you get the money, you cannot borrow further from the loan.

A home equity line of credit, or HELOC, works more like a credit card because it has a revolving balance. A HELOC allows you to borrow up to a certain amount for the life of the loan -- a time limit set by the lender. During that time, you can withdraw money as you need it. As you pay off the principal, you can use the credit again, like a credit card.

A home equity loan might be the best fit if you plan to use the money in a lump sum for a one-time occasion such as consolidating your credit card debt, replacing the roof, or paying for your daughter's wedding. The interest rate is fixed, and so are the monthly payments, and you can budget accordingly.

A HELOC -- home equity line of credit -- might be a better fit if you will need money periodically and not all at once. This is the case in lengthy home remodeling projects when you pay the contractor in two or more draws. Or perhaps you will need to shed an arm and a leg at the beginning of each semester over the next four years when the kids head off to college. A HELOC gives you the flexibility to borrow what you need, when you need it.

Home equity loans and lines of credit have become increasingly common since the mid-1980s as property values have soared and homeowners learned about managing their personal debt. Among the reasons for this surge in popularity: attractive interest rates and tax deductibility.

american-home-equity-loans.net
american-home-equity-loans.net

avonbylynne.com
avonbylynne.com

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