Home Equity Loans Versus Home Equity Lines Of Credit

There is a difference between these two ways of obtaining credit. As great as the differences are, the uses are also radically opposite. The only thing in common is the equity that your home represents as collateral to the credit you get and the way you spend it. If you own a home, a line of credit might be just what you are looking for.

A Necessary Definition

Home Equity is the amount or portion of the value of your home that is not affected by a mortgage. If you have one granted to you for 50% of the value of the property, the equity is the other 50%. If there is no mortgage, then the equity will be 100%.

The Loan

A home equity loan is a lump sum that is granted to you for a determined purpose, all in one go. You can use it to consolidate debt, pay off your credit card debt to avoid an endless refinancing, or any one-time purchase. The interest rate is active from the moment the loan is approved until you finish paying for it.

The Line Of Credit

On the other hand, a line of credit gives you the possibility to spend up to a determined amount, but for different purchases and irrespective of the amount you spend each time. The tools that the bank or lender gives you to use the line of credit are special checks or maybe a card, similar to a credit card, which you can use while you still have credit.

Credit Limit

When the credit limit is reached, you must free credit or make payments in order to renew your credit and so be able to continue spending. This is similar in structure to a credit card, but radically opposite in the credit aspect, since you are backing your credit with the equity in your home.

Therefore, the interest rate is much lower than that of a credit card, enabling you to make easier payments and not having to refinance.

The Advantage

While credit cards usually have a fee that is charged regardless of the use of the card, the line of credit has no charge and naturally no interest if you do not use your credit or if you have paid off your balance and are leaving it for future use.

Not All Lenders Have This

Shop around, as we usually suggest when you are looking for the best deal you can get. Look into interest rates and APR which are different concepts. We must point out that as with all types of loan, the line of credit has expenses in the form of fees.

Even If You Do Have A Mortgage

The line of credit can be equally granted, for the amount of equity left in your home. It would be convenient to study the possibility of refinancing your mortgage to release more equity. This is advisable only if you have paid more that half of your mortgage or you have made improvements on the house and the current value is higher than that considered for the original loan.

Let me remind you, then, of the main difference: A line of credit is for several small expenses at different times. The equity loan is one lump sum.

Article Source: ArticlesMaker.com

About the Author: Devora Witts is a certified loan consultant with several years of experience in the credit area who instructs people regarding credit recovery and approval for personal loans, home loans, consolidation loans, car loans, student loans, unsecured loans and many other types of loans. If you want to understand Unsecured Loan Instant and Bad Credit Personal Unsecured Loans thoroughly you can visit her site http://www.badcreditloanservices.com. If the link doesn't work, just copy and paste www.badcreditloanservices.com in your browser’s address bar. 

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