If you’ve been considering taking
out a home equity loan, you may have heard the term
“home equity line of credit.” Though home
equity loan and home equity line of credit are very
similar, there are some differences and you need to
be sure which is right for you.
Both are loans and both have to be repaid. Both use
the equity you have accrued in your home as collateral.
If you don’t meet the terms of the loan, both
can result in the lender taking action to repossess
your home.
The major difference between a home equity loan and
a home equity line of credit is the way proceeds are
disbursed and repaid. If you take out a home equity
loan, you’re asking for a specific amount of money.
Typically, the home equity loan is for a specific purpose.
You’re paying off credit cards, doing a remodeling
project or paying college tuition. The loan proceeds
are paid out to you in a lump sum and you start repaying
according to the terms of the loan.
The home equity line of credit may also be used for
anything, though the most common reason for taking out
this type of loan is for an ongoing project. For example,
perhaps you’re feeling growing pains and need
to add on to your home. Or maybe it’s time to
build that shop you’ve been dreaming about. Either
way, you may not have an exact dollar figure for the
project. If you have sufficient home equity available,
you can request a home equity line of credit that you’re
sure will cover the project. Once approved, you being
drawing out the money as you need it, rather than having
the proceeds distributed to you in one lump sum.
So what are the advantages of each plan? The home equity
loan simply moves the proceeds of the loan into your
hands immediately. With the home equity line of credit,
you only take out what you need and you need to repay
only what you take. What happens if you take out a home
equity loan and the loan amount isn’t sufficient
to finish the project? On the other hand, a line of
credit can quickly become a bigger loan than you had
planned to take.
So which is better? It becomes a very personal choice
depending on your situation. Whether to take out a home
equity loan or a home equity line of credit can be a
difficult decision. But once you’ve decided, the
rest is easy. Just fill out our online application and
we’ll do the rest. |
