Equity Loan and a Line of Credit

What’s the Difference Between an Equity Loan and a Line of Credit?


There are many things in our world that have a few different names and a Home Equity Loan and Line of Credit is certainly one of them. This type of loan could also be called a line of credit or a HELOC which is a combination of both names, Home Equity Line of Credit. Regardless, there are a number of reasons as to why a homeowner may consider applying for one.

What is a Home Equity Loan?

An equity loan is not considered a traditional home loan. It is actually a loan that is taken out against the home itself. It could be considered a second mortgage but in fact it really isn’t. The amount of the equity loan is based upon the amount of equity that the property currently has. The property will be appraised and the difference between the amount determined and the outstanding on any active mortgages and/or liens will be the approximate amount that the line of credit could be approved for.

For example, if the balance on your current mortgage is $100,000 and the property is appraised for $150,000 then the home equity line of credit could be for a maximum of $50,000. However, the lender will make the final determination of how much they will offer to lend based on the borrowers financial history and other criteria that the lender may have in place. You can make a request for a certain amount and if that amount falls within the lenders loan criteria it is highly likely that you will receive that particular amount or close to it.

Why a Home Equity Loan?

For some, they don’t want to refinance their home. They are simply looking for additional funds to pay for a variety of things such as to pay off credit cards, to buy a new vehicle, to pay for a someone in the household to attend college, to pay for expensive home repairs or perhaps to take a once in a lifetime trip to travel the world. In addition, the rates for a line of credit is lower than using a credit card or obtaining a personal loan.

When talking to your lender, it is a good idea to inquire what the current rates are, how long the loan can be for, how long are you able to access the funds, how are the funds accessed and perhaps is there a penalty for paying the loan off early. It is always a good idea to consult with several reputable lenders. By doing this, you will get multiple perspectives of this type of loan and different people will provide different pieces of information.

Gathering this information together will give you a good idea about how to go about obtaining a Home Equity Loan and what happens before, during and after the loan has been approved. Using the equity in your home may not always be the best option and this is why being knowledgeable about the process is so important. Asking questions is a start and you can begin by talking to your friends who may already have acquired a line of credit but better yet, consult with several lenders to obtain the most current loan information.

Take your time and consider the financial options available to you. A Home Equity Loan and Line of Credit is beneficial for many as it is not a traditional loan, it typically has a lower rate and is a short term loan.

Leave a Reply

Your email address will not be published. Required fields are marked *