A home equity loan (HEL) utilizes the equity in a home to provide the borrower with a loan. Borrowers are granted a lump sum of money equal to or less than the equity in their homes. In this case, equity refers to the difference between the fair market value of a home and the amount outstanding on the homeowner's mortgage. For example, if a person's home is appraised at $350,000, but he or she has $220,000 of outstanding mortgage debt, there would be $130,000 in equity.
A home equity line of credit (HELOC) also utilizes the homeowner's equity. Instead of receiving the entire value of the equity in one lump sum, however, a HELOC works more like a credit card with total equity as the credit limit. If you do not have a specific need for the entire equity of your home, a HELOC is your better option. You will be charged interest only on the amount that you borrow, as opposed to interest on the entire sum of your equity as would be the case with an HEL.
A HELOC poses less risk to the lender than an HEL because the total value of the equity is not cashed out all at once. Consequently, the borrower pays a lower interest rate with a HELOC than with an HEL.
Interest rates for both HELs and HELOCs are lower than unsecured loans or credit cards because they are secured by your property. This means that if you decide to move, the entire amount of the loan becomes due. If you are unable to pay, the lender can foreclose on the property, so carefully think through your options before deciding on either an HEL or a HELOC.
DIY debt consolidation: 3 secrets for success
You're sinking fast in credit card debt, and there's not a life preserver in sight. Loans and balance transfer offers involve applying for more credit. Follow these tips for rescuing yourself from the dangers of excess debt.
Reducing debt or building savings?Even if you are following a debt reduction plan, it is important to try and build emergency savings.
When debt help is not enough: 3 reasons for filing bankruptcySituations can arise that make paying your bills impossible, or that render you ineligible for participating in debt relief efforts such as credit counseling. When you're enduring any of these circumstances, consulting a bankruptcy attorney can provide information about your rights and the consequences of filing bankruptcy.
Personal spending rises as income slipsPersonal income declined in August, but personal consumption expenditures rose, according to the Bureau of Economic Analysis.
3 reasons for consolidating credit card debtAre you paying more than one credit card bill each month? Have you overlooked a bill and incurred penalty interest rates or late charges? Consider credit card debt consolidation for simplifying debt management chores.
Guide to No Cosigner Student Loans
Are you a would-be student who would like to attend college, graduate school, or professional school, but are hesitant because you…
The advantages of using your local credit union to refinance your mortgageLocal credit unions increasingly are popular alternatives to traditional banks. While banks are privately owned,…
Debt Consolidation for Senior CitizensFew people have more financial choices, yet more opportunities to be overwhelmed by those choices, than senior citizens. Seniors…
What is the Best Loan and Debt Repayment Program?Incurring debt sometimes is necessary in order to meet one’s financial and personal goals, or to make payments for necessary…
Bad Credit Student Loans for High Risk StudentsCollege costs nowadays are through the roof and are only expected to rise in the future. Most students and/or their parents…