subject: What is a Home Equity Line of Credit – HELOC Basics [print this page] Borrowing against the value of your home usually takes one of two forms: a home equity loan or home equity line of credit. While both terms are often thrown around interchangeably, they are understood in very different forms of debt and it is important that the differences between the two.
Equity loans give you a certain amount of money in a single amount. These loans are perfect if you're a large company, defined project like home improvements. With this type of debt havea set repayment plan, making it easier on the budget for the repayment of the loan.
So what is a "home equity line of credit? Unlike a loan, home equity line of credit (also known by its acronym HELOC) offer a flexible amount of money over a longer period of time. As credit cards, HELOCs offer a credit line to you access when you need the funds.
The main advantage of a credit line is that you only pay interest on the funds are withdrawn. For example, you couldGet a HELOC for $ 50,000. But if you only U.S. $ 10,000 back from her, you would only pay interest on that amount, rather than the total of $ 50,000. Another advantage is that there is often no closing costs.
The disadvantage is that usually HELOCs, as opposed to fixed interest rate, a home equity loan, the interest rate is variable. As interest rates increase to do so, the cost of your loan, sometimes dramatically. If you believe interest rates will rise in the future, as many experts do itmay not be wise to take a huge HELOC.
Another disadvantage is that your credit and income are reviewed every few years to see if you can afford to keep open the line. If it falls your credit score, your bank may close your credit line.
At a time when HELOCs offered low teaser rates that made them very attractive. However, in today's market prices for both types of debt are quite similar.
