Home Equity Loan and Line of Credit

By |

Mortgage Loans: Making a Worthwhile Selection

Taking out a loan has numerous branches; these may vary depending upon the different kinds of factors which may include the purpose of the loan, amount of loan and the setup that suit perfectly to the borrower. In all this, the most common types of two loans which have been offering people a huge confusion are none other than a home equity loan and line of credit.

These two kinds of loans are entirely differed from one another and have different setups as well, however, which kind of loan to go for is completely dependent upon the borrower as well as the purpose of the loan.

Home Equity Loan

When it comes to considering the home equity loan the most common thing over which it may be differentiated from the other kind is the fixed rate of interest and a fixed amount of the loan. It is more like a usual kind of loan which is taken out in order to fulfill different purposes. This loan is taken against the property of your residence as collateral and once the payments are made completely the residence is being returned.

The major benefit is this kind of setup offers is that it has a fixed amount of loan handed over and at the same time a fixed rate of interest has been considered. This loan is available in the instances when a borrower knows the clear purpose of the loan and the amount of loan he is required to raise. However, here, in this case, the rate of interest may be a little higher as compared to the other kind of loan called as a line of credit.

Line of Credit

When one takes a look at the line of credit, this loan is also taken against the residence of the borrower but has different terms in a few cases. This kind of loan has no fixed amount to be borrowed, instead, it has a complete withdrawal period which may be as long as ten years and the borrower is allowed to borrow during this tenure. However, as soon as the withdrawal period ends the repayment periods start and the borrower is then obliged to pay back. However, here, in this case, the rate of interest is floating but a little less as compared to the fixed rate which is being observed on the home equity loan. The major matter which might bother borrowers in this regard is the lack of fixed amount; the borrower may end up borrowing a lot which in turn becomes heavier at a later date to be repaid.

The two loans have their own pros and cons and other considerations but for different circumstances different kinds of loans and setups are feasible.

Leave a Reply