Mortgage / Equity

Equity
Home Equity
Mortgage
Home Equity Line of Credit Loan

Many people make the mistake of confusing a home equity line of credit with a loan. A home equity line of credit is not a loan and there is no such thing as a home equity line of credit loan.

A line of credit is an agreement in which a lender makes a set amount of credit available to the borrower. In a line of credit the borrower decides how much credit they use. Unlike a loan, a line of credit maintains open as long as the borrower qualifies for it. A loan is a one time payment of money while a line of credit is an ongoing or open ended arrangement.

A home equity line of credit is a line of credit that is secured with the equity in a home. The equity is the amount of the value of the home that exceeds the mortgage principal. As with a mortgage or a home loan, the house can be foreclosed upon if the line of credit is not paid.

Advantages to a Home Equity Line of Credit 

The biggest advantage to a home equity line of credit is that it is a source of finance that you can tap into at any time as long as you have credit available. This gives a home owner a source of funding for emergencies such as repairs and for projects like remodeling.

The homeowner doesn’t have to apply for a new loan every time they need to borrow against the house. All they have to do is tap into the home equity line of credit. This reduces hassle and paperwork and the possibility that credit reports will be pulled by lenders. Running a credit report can cause your credit score to fall and hurt your ability to get credit.

Since the homeowner only borrows and pays interest on the money the actually use the homeowner may have less money to pay back. This means the line of credit can be paid off faster which will give the homeowner more money to spend.

How to Get a Home Equity Line of Credit

A homeowner will apply for a home equity line of credit much like they would apply for a loan. First the homeowner will go to a website and use a calculator to locate home equity line of credit offers.

The homeowner will then compare several home equity line of credit offers. Once these offers have been compared the homeowner can locate the one with the best interest rate. The best interest rate is usually the lowest fixed interest rate that the homeowner can get.

The homeowner will then apply for the home equity line of credit much like a loan. When it is approved the home owner will be able to go online and draw out money when they need it. The money is usually placed in the homeowner’s checking account via direct deposit.

Home Equity Line of Credit vs. Home Equity Loan

The reason a homeowner should choose a home equity line of credit over a home equity loan is that the home equity line of credit is usually a better deal. The home equity line of credit will usually cost less and be more flexible in the long run.

Those who make proper use of a home equity line of credit can save money and give themselves more credit in the long run.