An Objective Look At Home Equity Loans Vs Home Equity Lines Of Credit
To fully understand and appreciate the pros and cons of both Home Equity lines or Credit (HELOCs) and Home Equity loans, it is important to first clearly define the two and get the distinction that exists between them. Home equity is mainly the difference between the fair market value of a property and the balance of any mortgage that’s owed against it. On the other hand, a HELOC is a variable rate line of credit that uses you home (primary residence) as security for the debt or collateral. Generally, the amount you may be able to borrow is the difference between your homes market value and any debts which may have been secured by the home such as the current mortgage balance.
Depending on your needs, requirements and current situation, any of the two options may suffice. However, it is important to note, even from the above definition that there are several stark differences between the two as well as similarities. One of the major differences between the two is that whereas your HELOC will include a draw period which can be up to ten years followed by a repayment period which can be up to twenty years, the home equity loans allow homeowners to access their equity in a lump sum amount of cash. So as earlier mentioned, depending on your current needs or task at hand, you may either opt for an account where you can draw money for a long time or go for one where you get a lump sum amount and complete your project or clear a debt.
It is also worth mentioning that home equity loans are usually fully amortized and have fixed interest rates. This does imply that there are no exotic loan features such as negative amortization or interest only payments. On the other hand a HELOC will provide you with a line of credit which allows one to draw funds up to a maximum credit line which has been agreed upon. Even though HELOC loans require monthly payments, they may allow some exotic features such as interest only payments for a specified period of time. Usually, home equity lenders will provide checks or debit cards to use for HELOC loan withdrawals.
One of the major benefits and similarities between the two products is their relatively low interest rate, which is most of the time much lower than what you would otherwise get on unsecured bank loans or credit cards. This is mainly because your home does serve as security or collateral. Additionally, the interest that you are going to pay on either of these products is also tax deductible depending on certain factors. The low interest of both of these products does make them a good choice or option for one who is keen on consolidating his or her consumer debt.
When you are considering home equity loan vs home equity line of credit, the key factor is usually the reason behind your need for borrowing. As earlier mentioned, if you have a one-time, large expense that you need to settle, then home equity loan will be your best bet. On the other hand, if you have recurring expenses then a HELOC loan will be the best bet in that it will allow you make withdrawals as your needs arise. However, it is important to note that unlike a home equity loan where you borrow the whole amount at once and therefore charged interest in advance of your requirements and needs, with HELOC, you are charged as you go. This implies that you are only charged interest on amounts you have drawn against your credit line. This does therefore provide you with ready cash in case of emergencies.
For both products, it is important to note that because they are secured by your home, they can be foreclosed according to state law. Here are some leading financial institutions that offer both HELOCs and home equity loans to their clients, they include but are not limited to the following:
1) Bank of America
Mailing Address: 100 North Tryon Street Charlotte, NC, 28255
Phone Numbers: 1-800-763-2053
Web URL: http://is.gd/vFx15z
Other Programs: apart from Home Equity loans, the institution does also offer mortgage and refinancing options to its clientele.
2) JP Morgan Chase and Co
Mailing Address: 270 Park Ave New York, NY 10017-2014
Phone Numbers: 1-866-776-5167
Web URL: http://is.gd/pDYCAq
Other Programs: the bank does also offer its clients a wide range of loan products such as Auto loans, mortgage, student loans as well as home equity.
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