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Home Equity Lines of Credit Vs. Other Conventional Loans
When it comes to getting money, you have two basic options. If
you are a homeowner you can choose to take out a home equity line
or credit (HELOC), or you can take out a conventional loan. Both
of these products will provide you with the funds needed, but the
similarities end there. With varying interest rates and repayment
options, you have a wide array of choices. We will discuss the
differences between these two options, and then decide on which
one is best for the typical homeowner. Remember, that everyone's
situation is different, so use your best judgment when choosing a
loan product.
You may already be familiar with a traditional loan product.
These are usually based on your credit rating and your ability to
repay the loan. The lender will review your past tax returns,
credit score, as well as your salary. They may also factor in
your income potential in the near future, if you are currently
enrolled in a higher education program or up for a promotion
soon. The main benefit of such a loan is that you have little at
stake if you fail to repay the loan. They may have the ability to
garnish your wages or hurt your credit rating, but you will be
able to keep your home. The main disadvantage to this type of
loan is that you can expect to pay a much higher interest rate
than that of a home equity loan. You may also find yourself
unable to take out as much as you would with a HELOC.
A Home Equity Line of Credit is a completely different time of
loan. The bank will determine the amount of equity that you
currently have in your home (value of the home- amount of liens=
equity). They will then allow you a credit line that is a
percentage of your equity. You will likely receive checks or a
bank card that will allow you to make withdrawals on your own
schedule. You can borrow as little, or as much as you want as
long as it is within your credit limit. You will then make
monthly payments based on the balance of the loan. Most lines of
credit will require a minimum payment to cover interest, but the
actual payment amount is up to you. The process is very similar
to that of a regular credit card, except that you have your home
backing up your purchases. The main advantage to this type of
loan is that you can usually enjoy a much lower interest rate,
and pay as much or as little during the life of the loan. The
main disadvantage is that if you fail to pay the balance off, you
could lose your home. So it is important to only take out what
you can repay.
Which one is better? It all depends on your personal
situation. If you have had trouble in the past with credit cards
and revolving credit, a HELOC could be a very dangerous thing.
Maxing out your HELOC has a lot more at stake than maxing out a
typical credit card. So it is important that you have your
finances and budget in place, prior to taking out such a loan. If
your credit is poor, a HELOC may give you options where a
traditional loan would not. Bottom line; understand your
situation and you should have no trouble deciding the right loan
product for your needs.
John Ross is a freelance author, providing tips and ideas
relating to home equity loans. You can find more of his articles
at: home equity
loan company, online
home equity loans, and fixed
rate home equity loan. The Loanchbox is a user friendly
website designed to teach the basics behind home equity loans
 MORE RESOURCES updated Thu. February / 09 / 2012
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