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Home Equity Loan or a Home Equity Line of Credit?
A home equity loan is good for items that require one large payment. This is why so many consumers use it for debt consolidation. The interest rates on home equity loans are low enough to be beat out the prevailing rates on almost every other type of consumer debt. In this era of teaser rates, it is safe to say that no one is safe when it comes to long term debt.
Financial institutions are constantly updating their rules to penalize customers based on their behavior even if they have great credit. One late payment or an over-the-limit fee can take you from a 3.9% interest rate to over 19%. It is no wonder that more consumers are willing to use a home equity loan to manage their finances. It is an easy, accessible, low cost option.
However, usually, once you get a home equity loan, you must pay off the amount before you bank will consider you for another loan. It is easy to see why this would be the case. A home equity loan decreases your available equity, increases your debt obligation to your lender, and is usually a sign that your monthly bills are getting beyond your control. Once youve been approved for your loan, it puts you in a less than ideal position as a potential borrower.
Home Equity Line of Credit is revolving so it can cover expenses over and over again.
A home equity line of credit functions as a revolving credit line that is always open in case you need fast access to some cash. It operates just like a credit card in the sense that the limit is finite, interest rate is applied only when you have an unpaid balance, and any amount you take out reduces the total remaining balance.
If you have a credit line of $30,000 and you use $12,000, then you pay interest on the $12,000 and you have a remaining balance of $18,000 available at any time.
Home Equity Line of credit is great for emergencies
If you should experience a sudden job loss, an accident, or any other type of emergency where your salary is in jeopardy but you will need a loan, you can still have access to your home equity line of credit. It does not require a new loan application and can give you the same great rates as a home equity loan.
The interest rate on your credit line will vary based on the amount that you have used and the credit terms established by your lender.
So how do you decide which one is better?
Take an objective look at your finances. If it looks like you need a one time loan to reduce your debt, then a home equity loan is a good choice. If it looks like your will have periods where you will need more cash that you an get on your credit card, then a home equity line of credit might be your best option.
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Syd Johnson
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More Useful Resource and Updates on equity home loan mortgage off pay
- Bernanke urges action to halt foreclosures (Reuters via Yahoo! News)
Federal Reserve Chairman Ben Bernanke on Thursday urged more aggressive steps to halt home foreclosures and said government-funded programs could help strapped homeowners.
- Proposal could drop mortgage rates to 4.5 percent (San Jose Mercury News)
If Treasury Department approves plan, said one mortgage broker, 'We would have everybody and their brother who had equity in their homes coming to refinance. That would be an amazing influx of loan applications. It would keep things going for a long, long time.' Rates drop to 11-month low Bernanke: More foreclosure help needed Real estate news | Economic crisis news
- Five Home-buying Myths (Carteret County News-Times)
(ARA) - As first-time homebuyers grow curious about the home-buying process, they often turn to friends and family for advice about purchasing a home. While these sources can provide useful tips and information, they also may perpetuate some common home-buying myths.
- Bernanke says need to do more to halt foreclosures (Reuters via Yahoo! News)
Federal Reserve Chairman Ben Bernanke on Thursday urged more aggressive action to halt home foreclosures, and said write-downs of principal may need to be part those efforts.
- (AFX UK Focus) 2008-12-04 16:30 Bernanke - need to do more to halt foreclosures (Interactive Investor)
WASHINGTON, Dec 4 (Reuters) - U.S. Federal Reserve Chairman Ben Bernanke on Thursday urged more aggressive action to halt home foreclosures, and said write-downs of principal may need to be part those efforts. "Despite good-faith efforts by both the private and public sectors, the foreclosure rate remains too high, with adverse consequences for both those directly involved and for the broader ...
- Kiwibank Responds To OCR Cut (Scoop.co.nz)
Kiwibank has reacted immediately to the cut in the Official Cash Rate by reducing all home loan rates. The bank is now offering a one-year fixed rate of 6.49% p.a. and a variable rate of 7.45%.
- Opening the tap on home equity (Austin American-Statesman)
Borrow before credit line is frozen, some suggest. Many homeowners who have taken out home equity lines of credit have learned in recent months that these loans are not as useful as they initially seemed.
- Consumer Loan Rates (The Springfield News-Leader)
Springfield financial institutions quoted the following rates Friday for home equity, auto and boat loans. The home equity rate is based on a $10,000 loan or line of credit with applicable points included. Rates are variable unless otherwise noted. Additional fees are not included. The auto loan rate is based on a 48-month contract for a new car. The boat rate is based on a loan for a new boat.
- Fixed-rate trap snares home owners (Sydney Morning Herald)
More than 40,000 unlucky Aussies are being denied any saving from the recent interest rate cuts.
- Fixed-rate trap snares 43,000 home owners (Sydney Morning Herald)
MORE than 40,000 unlucky people have been caught out in a fixed mortgage rate trap, having taken out their loan at the highest fixed interest rates in a decade, denied any saving from the recent cuts and confronting costly break fees if they decide to refinance.
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