Home equity line of credit loans are right for you if you need extra cash over the next ten years. Lenders will give you lines of credit; if you need money you may write a check to take it out.
The line of credit loan is a loan that you can borrow against the equity on your home. These loans are the flexible alternative to the home equity loans or second mortgages. You might get confused with vast variations of the equity line of credit loan. But for certain uses these loans offer you more benefits.
Terms Used by Home Equity Lenders
Based on how the interest and other costs charged to homeowners, there are terms used by home equity line of credit lenders.
- Variable interest rates. With variable interest rates, you won’t know from month to month what the interest payment will be. The interest rate on the loan will vary to the same degree as the interest rate set by the Federal Reserve Board.
- Low introductory interest rate. These interest rates sound attractive, but it’s highly probable that you will later be asked to pay a considerably higher rate. Although regulators set a certain ceiling, you need to read the loan agreement carefully to understand what your payments could be at a later date.
- Costs of the application process. Some lenders offer an equity line of credit loan with a large one-time fee. Other lenders offer line of credit might without mentioning such kind of fee but then add continuing costs.
- Balloon payments. A balloon payment is a sizable payment you need to pay out once the loan term has ended. There are alternatives line of credit loan that can avoid a high balloon payment but they usually ask higher monthly payments.
Equity Line of Credit or Home Equity Loans?
Home equity loans come in home equity loan or line of credit forms. The equity loans can help you pay off debts, reduce high interest on credit cards, pay off tuition, remodel your home, and so forth.
If you feel that you’ll need extra cash over the next ten years, then you may want to consider the lines of credit offered. Depending on the agreement some lenders have restrictions on the credit lines.
You can take out the full amount at once or else you can only take out limited amount. But most lenders give you their checks so that you can take out the money when you need it.
The interest of home equity loans are often fixed rate and paid regularly together with part of the principal debt. On the other hand, the interest of credit lines is Prime Rates, which are variable and not based on a fixed interval.
While home equity loan’s monthly payments are often fixed, lines of credit offer flexible monthly payments. The line of credit flexibility extends up to paying only the interests and paying the entire principal loan at the end of the term. But lower payments at the beginning may result in high principal, balloon payment at the end.
Do You Need an Equity Line of Credit Loan?
The right type of equity loan depends on your needs. If you’re considering debt consolidation, then home equity loans are your best bet. On the other hand, if you need ongoing cash, then credit lines are the best choice.
No matter what loan you choose, consider spending some time reviewing your different options to make sure you are getting the best possible deal from a reputable equity lender.