Credit Equity Home Line

Information on Credit Equity Home Line Resources

Home equity loans and home equity lines of credit are very beneficial, and can provide homeowners with quick cash for a variety of purposes. Although similar, there are key differences that make these loans unique. Before using your home's equity for home improvement, debt consolidation, etc., compare both options.

What is a Home Equity Loan?

Home equity loans are similar to other types of personal loans. The majority of personal loans are secured. Usually, an applicant will provide the lender with a vehicle title or other valuable piece of property. With a home equity loan, your home is the collateral.

Home values are constantly increasing. Moreover, mortgage principles decrease. The difference between a home's value and the amount owed to the mortgage lender equals the equity. For example, if your home is valued at $130,000, and you owe the mortgage lender $80,000, the home's equity totals $50,000. With a home equity loan, the homebuyer may choose to access all, or part of the home's equity.

Benefits of Home Equity Loans

The majority of home equity loans have fixed rates and payments. Secondly, the money is acquired as a lump sum. Once the homeowner receives the funds, the money can be used for any purpose. The average term of a home equity loan is 15 years. However, homeowners have the option of repaying the money sooner.

What is a Home Equity Line of Credit?

Similarly, home equity lines of credit are based on the home's equity. Instead of funds being received in one lump sum, lines of credit entail revolving credit accounts. If approved for an equity line of credit of $50,000, a credit line is established for this amount, and homeowners may withdraw funds as needed.

Lines of credit can be compared to credit card cash advances. However, the rates are much lower on a line of credit. The length of a line of credit is usually ten years. At the end of the term, the homebuyer may choose to apply for another credit line. Because the rates are variable, payments are not predictable. To avoid high monthly bills, homeowner must quickly repay the money, and withdraw small amounts.

A home equity line of credit can be a life saver when you have a project or a short term cash necessity, however the term (the amount of time) in which you have to pay the loan back is likely to be considerable shorter than you would get were you to take out a home equity loan instead and the interest rate is likely to be a variable rate (more on variable rates later). The most important thing you need to consider before taking out either loan is "will taking out this loan effect your ability to make your monthly payments and possibly jeopardize your home.

For this reason I would recommend that while considering the flexibility that comes with a home equity line of credit, you also consider taking out a home equity loan instead. The reason for this is that with a home equity loan you attach the sum to your already existing mortgage and the debt is spread out over a much more manageable amount of time.

In contrast, the variable rate that that applies to a home equity line of credit leaves you vulnerable to changes in the mortgage indexes (the thing that your interest rate is based on). In addition to the variable rate of a equity line, your payment is likely to balloon at the end when you need to pay off the loan in its entirety.

Before you sign any type of home loan contract that puts your home up as collateral, it is recommended that you weigh the following considerations.

1. Are you going to need the money as a single lump sum? If so than you will likely want to apply for a home equity loan.

2. Or are you looking to draw out funds over time? If so than a home equity line of credit may in fact be what you're looking for.