Mortgage / Equity

Equity
Home Equity
Mortgage
Equity Line of Credit Loan

Contrary to what a lot of people think an equity line of credit is not a loan or a mortgage. It is a limited means of financing that is similar to a loan but has some big differences.

The major difference between an equity line of credit and a loan is that a loan or mortgage is a one time arrangement for a fixed amount. When you take out a loan you get a fixed amount of money usually as a lump sump. You can only take out a loan once and when you need another loan you have to repeat the application process.

A line of credit is an agreement which allows you to receive equity based credit when you request it. With a line of credit you only receive the credit when you want or need it. An equity line of credit is not for any fixed amount instead you have the right to borrow up to a certain amount.

The advantage of an equity line of credit is that you only have to pay back what you need. You can also pay interest on what you need.

Equity Loan

An equity loan is a loan backed by the equity in a piece of property such as a home. Equity is the difference between the value of a property and the amount owed on the mortgage. If you default on an equity loan the lender has the right to foreclose on the property.

Equity loans are basically additional mortgages placed on property in order to get additional financing. An equity loan will increase the debt load on a property and the chances of foreclosure.

Unlike a line of credit an equity loan is a one time arrangement between the borrower and the lender. If additional credit is desired the borrower will have to take out another loan.

Equity Line of Credit Loan

An equity line of credit which is sometimes called an equity line of credit loan is an arrangement that allows you to tap the equity on a piece of property. In a loan you receive a sum of money while in an equity line of credit you have the opportunity to borrow money if you want to.

Like an equity loan an equity line of credit is backed by the equity in a piece of property. The equity is determined by subtracting the principal of the mortgage owed on the property from the value of the property.

One disadvantage to an equity line of credit is that in most such arrangements all of the equity can not be accessed. Most equity lines of credit give you a credit limit equal to a percentage of the equal usually around 80%. For example if you had $30,000 worth of equity you would be able to borrow $28,000.

Usually the interest rate you pay on an equity line of credit is about the same as you’d pay on an equity loan.

Confusion between Equity Line of Credit and Equity Loan

People often confuse equity loans and equity lines of credit because both loans are secured by property. Interest is charged on both kinds of instrument and persons have to pay both back like a mortgage.

The confusion is furthered increased by the fact that lines of credit are sometimes called revolving loans or open ended loans.