Home equity loan vs home equity line of credit

[TR Custom Parts]

Thinking about using some of the equity in the house to get rid of some credit cards and help with some basement remodeling.

Which is better, a straight home equity loan or a equity line of credit??

 

[wlaukaitis]

Here's the dilly

A Home equity loan is just that, a loan. If you apply for $60g's they give you a check for $60g's it is paid off over a long period of time and the interest is tax dedectible.

A Line of Credit is like a credit card. Apply for $60g's and use 5 you are down to 55g's to use. Pay back the 5g's and you have 60 to use again. This is what I have on my house. You can usually only draw on it for 5 years then you have 15 to pay it back. It is a little more compicated than that but I hope you get the idea.

So, there is no "good or bad". I took out the HELOC to work on the house and ended up paying off lots o' debt and didn't do much with the house. But If I had gotten a loan that would be the end. If I hit lotto, I can pay it back, buy a new GTO with the HELOC and be happy!

 

[2quiktocare]

The home equity has to conform to mortgage laws and regulations where as a the equity line is like a credit card with your house as collateral and does not have to conform to mortgage regulations. If for some unforseen problems in the future, with an equity line, you could loose your home simply by missing one payment.

 

[G-Force]

"you could loose your home simply by missing one payment"

That's why there is mortgage insurance.

 

[2quiktocare]

Last I know of you can't get mortgage insurance on an equity line since it isn't a mortgage. It is a personal loan against your homes equity.

 

[XLR8]

Originally posted by G-Force
"
That's why there is mortgage insurance.

Mortgage insurance protects the LENDER not the borrower.

If you go through a real mortgage company - Wells Fargo does a lot of HELOCs - you will not lose your house if you are late on one payment - though your credit and credit scores will most likely be affected.

One benifit of a HELOC is that you usually just pay the interest on the outstanding balance for a term of 5 to 10 years. So on a $50,000 balance on a HELOC at a rate of prime + 1%, your monthly interest payment would be approx $261.

 

[Paxel]

Boosted,

The biggest difference between the two is that the Loan will be a fixed rate for a certain term, whereas the HELOC is a revolving credit line that is not fixed but variable based on prime. Usually you will pay Prime +1% or so depending on your credit. One thing to consider is that prime is currently trending upward and may continue for a while. The rates on HELOC's are great today and I personally like them, but if you are planning to take out a large sum of money look into the loan where your rate is fixed. Both are considered second mortgages and the interest is therefore tax deductible. As far as losing your home by not paying one month I am unaware of any clause like that. I am a mortgage banker for a large bank and we don't have any guidelines like that. I mean if you don't pay at all that is a different story. Just make sure you use a reputable lender and good luck.