Home Equity Loan vs. Home Equity Line of Credit
Equity is the difference between the “value” of the home and the “balance” of the existing mortgage on the property.
A home equity loan (term loan) is one large sum that is paid off over a period of time. Rates and payments remain constant (fixed rate), and once the loan is closed you can no longer borrow from that loan. A home equity loan typically has a lower rate than a HELOC and is used for debt consolidation and other single-purpose purchases. 125% home equity loans allow you to take out a loan for a value greater than that of your home.
A home equity line of credit works like a credit card. A borrower can only borrow up to a certain amount over the life of the loan. Just like a credit card when you pay off the principal your credit revolves and you can use it again. Monthly payments will vary depending on the current balance and interest rate (non-fixed – variable interest). When the loan reaches maturity, everything must be paid off. An initial advance is often required when the loan is set up, and a minimum amount each time you withdraw.
To Choose what loan is better for you, contact an Approved Funding Mortgage Consultant today.
