Types Of Home Equity Loans
By Joseph Kenny, Thu Dec 8th
Home equity are a way of using the money that you'veinvested in your mortgage by borrowing against it. Essentially,a home equity loan is a 'second mortgage' - a loan secured byyour property. If you don't make good on your payments, thelending company or bank can force the sale of your house torecover their money. There are two major types of home equity - home equityloans and home equity lines of credit, also called HELOCs. Mostlenders that offer home equity offer both kinds. A homeequity loan for $10,000 and a home equity line of credit for$10,000 are two completely different animals though they have alot of similar features. Home Equity Loan
If you apply for and are granted a home equity loan for $10,000at 7% APR for 15 years, you will receive a check or a deposit toyour bank account of $10,000. That is the full amount of theloan that you can ever draw on that particular application.Depending on the terms agreed upon, you may have one to severalmonths before you have to begin repaying the loan. You'll pay afixed amount every month until the full amount of the loan andthe interest charge is paid off. You'll know from the very starthow much you'll be repaying. Home Equity Line of Credit A home equity line of credit - a HELOC - is much more like acredit card. When you apply for and are granted a home equityline of credit, the bank establishes a 'line of credit' - whichfunctions just the way that a 'credit limit' does on your creditcard. You may receive special checks or a plastic card withwhich to access your line of credit - but you don't receive thefull amount at one time. In fact, you don't have to take any of it immediately. You candraw on the line of credit at any time, up to the full amount ofthe line of credit throughout the agreed-upon life of the loan.Suppose that you're doing some home repairs. You can use yourhome equity line of credit to pay for $2,000 worth of roofingtiles. That leaves you $8,000 in your line of credit. Threeweeks later, you can use your line of credit to pay for $4,500worth of windows - and still have
$3,500 left that you canborrow against. If you then start paying back on your home equity line ofcredit, that money becomes available to you again. If you payback $1,000 of what you've borrowed, you now have $4,500 on yourline of credit. A home equity line of credit has two 'phases' - there is thedraw period, during which time you can draw against the creditlimit as long as you stay below the limit. During that time, youcan elect to only pay the interest that accrues - or you canmake payments on the principal to free it up. Once the drawperiod is over, you go into the repayment period. During therepayment period, you can't draw against the line of credit anylonger, and must make full repayment. About the author:Joseph Kenny is the webmaster of the loan information sites http://www.selectloans.co.uk/ and also http://www.ukpersonalloanstore.co.uk. |
