Home equity loan or Home equity line of credit
Which is better a home equity loan or home equity line of credit? Choosing between a home equity loan and a home equity line of credit involves several factors that are important to the borrower such as loan amounts and terms.
Origination fees are different between the two as are the interest rates. In the details that follow, I want to discuss some key features that will help you to determine if a home equity loan or home equity line of credit is right for you.
Acquiring a traditional second mortgage loan provides the borrower with a set amount of money at the time the second mortgage is finalized.
The loan is repayable with a fixed payment of principal and interest for a set amount of time.
The home equity line of credit is available for drawing against it as long as there is a balance.
Paying more money per month on a home equity loan is generally acceptable and the lender will establish an amortization table to show how quick additional amounts monthly will reduce the balance faster.
A home equity line of credit will usually allow additional payments but many do not depending on the way that the credit line is structured.
Renting the property is generally not prohibited by a second mortgage, but renters are usually not allowed by the terms of the home equity line of credit. The second mortgage and the line of credit will both have to be paid off when the house is sold.
Appraising the property is a requirement for both of the loans. Both loans require a new title policy which guarantees the lender that there are no liens or any other debts owed on the property that would prevent the home from being sold if you default on your terms.
Selecting a Home Equity Loan or Home Equity Line of Credit requires that a detailed accounting of the initial fees such as the appraisal fee, the application fee, up-front charges including points, and closing costs.
Points are processed as one point equals one percent of the loan. The $10,000 loan would cost $1,000 for one point and $2,000 for 2 points. The costs can be higher for either loan by area.
Lending organizations will vary in cost and fees depending upon how eager they are for the business, or how much money they want to make.
Comparison shopping is important when pursuing either of these options. The lender will help you compile the numbers for your analysis.
In either case, it is important that you make your payments on time. This will help to improve your credit score and it will also help you in the future should you need a loan or line of credit again.
Additionally the most important part of both processes is not the money that you will receive, it is formulating a plan that you can easily stick to when repaying the money.
If you do not use all of the money that you are borrowing, do not just waste it on frivolous things; use it to make payments to the lender.
You do not have to withdraw all of the money that is available with a line of credit. If you need the money for a kitchen remodeling for example, be sure to include everything in the sum total of money that you will need.
Do not hire fishy contractors because when it comes time to sell your home, it will have to be inspected again. Any bad repairs that are found are the responsibility of the home owner not the buyer.
Sure, you could sell your home in “As Is Condition” but you will have to likely lower your asking price so the buyer can perform the repairs.