Types of Home Equity Loans

Home equity loans are a manner of using the money that you've invested in your mortgage by borrowing against it. Essentially, a home equity loan is a 'second mortgage' - a loan secured by your property. If you don't do good on your payments, the lending company or bank can coerce the sale of your house to retrieve their money.

There are two major types of home equity loans - home equity loans and home equity lines of credit, also called HELOCs. Most lenders that offer home equity loans offer both kinds. A home equity loan for $10,000 and a home equity line of credit for $10,000 are two completely different animate beings though they have got a batch of similar features.

Home Equity Loan

If you apply for and are granted a home equity loan for $10,000 at 7% APR for 15 years, you will have a check or a sedimentation to your bank account of $10,000. That is the full amount of the loan that you can ever pull on that peculiar application. Depending on the terms agreed upon, you may have got got one to respective calendar months before you have to get repaying the loan. You'll pay a fixed amount every calendar month until the full amount of the loan and the interest charge is paid off. You'll cognize from the very start how much you'll be repaying.

Home Equity Line of Credit

A home equity line of credit - a HELOC - is much more than like a credit card. When you apply for and are granted a home equity line of credit, the bank set ups a 'line of credit' - which mathematical functions just the manner that a 'credit limit' makes on your credit card. You may have got particular checks or a plastic card with which to access your line of credit - but you don't have the full amount at one time.

In fact, you don't have to take any of it immediately. You can pull on the line of credit at any time, up to the full amount of the line of credit throughout the agreed-upon life of the loan. Suppose that you're doing some home repairs. You can utilize your home equity line of credit to pay for $2,000 worth of roofing tiles. That leaves of absence you $8,000 in your line of credit. Three hebdomads later, you can utilize your line of credit to pay for $4,500 worth of windows - and still have got $3,500 left that you can borrow against.

If you then begin paying back on your home equity line of credit, that money goes available to you again. If you pay back $1,000 of what you've borrowed, you now have got $4,500 on your line of credit.

A home equity line of credit have two 'phases' - there is the pull period, during which clip you can draw against the credit bounds as long as you remain below the limit. During that time, you can elect to only pay the interest that accrues - or you can do payments on the principal to free it up. Once the draw time time period is over, you travel into the repayment period. During the repayment period, you can't pull against the line of credit any longer, and must do full repayment.