Home Equity Loan And Line Of Credit

Home Equity Loan And Line Of Credit

by Patricia Lewis

Many people turn to a home equity loan to consolidate their debt, pay off some credit cards, make repairs, renovations to their current home, pay for personal vacations, weddings, or other special purchases.

A home equity loan is a one-time loan amount that is paid off over a period of time with fixed interest rates. Borrowers cannot get this loan amount extended, and will lock in the current rate. There is also what is called a home equity line of credit. A home equity line of credit is extended to borrowers with a home equity loan and can be used like a credit card. Any amount can be withdrawn and paid off as part of the principal balance. Both types of loans are available for home owners who qualify for the loan terms.

Equity is the difference between the worth of the home, and how much is left on the mortgage. The line of credit simply turns this amount into cash, and can be used for other projects or as a revolving credit card balance.

Many people look for a home equity loan when they are looking to make a big purchase. This might include refurnishing or renovating the house, purchasing a new car, or obtaining a personal loan. A home equity loan lets the borrower borrow money against the home's equity as collateral for the loan. If the borrower does not repay the loan, they can lose the home or if they sell the home, the loan still remains and requires repayment.

There are many home equity scams and frauds in the market, offering very low interest rates but exceptionally high fees. These are often disguised as balloon payments, or sudden appearances of new larger loans just from a recent loan. This is called loan flipping, and can only drive you into a circle of debt. Some contractors may offer a home improvement loan that they states you've already been pre-approved by a bank. No matter what the case may be, it's important to review all documentation, rates, and obtain a second opinion by shopping around.

Getting a good deal on a home equity loan is similar to obtaining the original loan. The borrower will need to provide steady credit, and possibly offer an up front payment to reduce the rate and term of the loan. Getting a good deal on the equity loan may also involve obtaining a good appraisal of the house--the collateral--and working with an ethical and legitimate lender.