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Difference Between Equity Lines of Credit and Loans

Difference Between Home Equity Lines of Credit and a Home Equity Loan

The different between a home equity line of credit and a home equity loan is in the way the loan pay outs are handled by both the lender and borrower. For the home equity loan, the usual case is that the lender will release the full amount of the loan in one payment to the borrower which the borrower pays back over a certain number of years. For the home equity line of credit however, the lender gives the borrower a kind of credit line that he can borrow on for a certain period of time, whenever the need for the money arises.

The best part about opting for a home equity line of credit is that whenever you need the money, it will be made available to you by the lender. This means that if you have an emergency, like a family member goes to a hospital and runs up a hospital bill, you can easily access you home equity lines to get the cash you need to pay the bills. Or if something happens to your home where there is extensive damage, such as a leak that destroys half your ceiling, then you can avail of your home equity line cash quickly at your convenience.

However, there are some reasons why some people would rather choose a lump sum coming from a home equity loan over home equity line of credit loans. For one thing, if you have a line of credit and you need the money, there is a minimum amount of money you have to withdraw, regardless of whether it is too much for the moment. This also entails that you have to pay specific transaction and bank fees to be able to access the amount of money that you need. Therefore, it is vital that you properly plan when you need the money and just how much you get from your home equity line of credit just so that you can prevent too many bank and transaction fees being charged.

Another downside to getting home equity lines is that although there is flexibility for you in terms of withdrawing money for your use whenever you need it, there is no flexibility when it comes to the repayment terms on the loan. Once the time period for the loan is up, it is really up. That means that you have no room to negotiate in terms of repayment terms. Instead they will pile on late fees and other penalties which will increase your debt to the lender.

Also, if you have a home and put it up as collateral for your home equity line of credit loan, you will have to realize that you are tying yourself to strict terms in handling your own home. Most lenders will limit you and prohibit you from ever renting out your home if you have a home equity line of credit loan with them. This is why it is important to always read your home equity loan terms to make sure that you are able to comply with them over the repayment period you agree to.

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