What Is The Difference Between A Home Equity Loan And A Home Equity Line Of Credit?
Matrix Mortgage Global – What Is The Difference Between A Home Equity Loan And A Home Equity Line Of Credit?
First, we should have a basic understanding of what home equity is and how it works. To quickly sum it up -home equity is the difference between the value of your home and the unpaid balance of your current mortgage. Upon approval, you can use the equity in your home as collateral to secure either a home equity loan or home equity line of credit. Which one you choose will be based on your individual needs and understanding the difference between the two will help you to make an informed decision.
So now let’s look at the differences between a loan and a line of credit.
A home equity loan is a lump sum of money you can borrow that you pay back over a stipulated period, with interest. You receive a one-time payment and you pay back that sum, plus interest over an agreed upon amount of time. So, for example, if you get a loan for $5000 dollars, you get $5000 at once and you pay that back, with interest over a fixed amount of time. A line of credit differs in that you may borrow up a certain amount of money, on an ongoing basis, more like a credit card. With a line of credit, you only pay back and pay interest on the money you actually use. So, for example, you may have a line of credit for $5000 but if you only use $2000, you only make payments and pay interest on $2000. In addition to that, once you pay off the balance, it is available for you to use again.
To summarize, a loan is a one-time payment paid back with interest over a fixed amount of time wherein a line of credit is a fixed amount of money available on an ongoing basis. With either option, you can have access to all of the funds immediately, but a line of credit will give you access to more credit once you pay it down and a loan will decrease over time.
If you don’t foresee needing access to a large sum of money again before you pay it off a loan might be the best option for you. If you only need a portion of it, for the time being, a line of credit will allow you to only use what you need when you need it thus incurring lower monthly fees.
Which one you choose will depend largely on your personal financial needs Call us today at 1-800-542-0601 and we here Matrix Mortgage Global can help you decide which option is best for you.