Home Equity Line of Credit Loans

Many people get confused when they hear the term home equity line of credit.  They immediately think that it is a home equity loan.  These two loans are very different in their purpose and their setup.  A home equity loan is a sum of money taken out on the equity in your home.  Both loans can be used to renovate, pay for your children’s education or even go on a vacation.  Home equity line of credit loans act more similar in function to a credit card.

Home equity lines of credit (HELOC) are not set amounts such as a home equity loan.  In a HELOC you have access to a maximum amount; however, you don’t have to go near that limit if you don’t want to.  It is in a sense a secured credit card because it is secured against the equity that is in your home.  In its use though it functions just like a credit card with a very low interest rate. 

You still have to make monthly payments, pay interest and you are penalized for being late. Lenders are very willing to give out HELOC’s because the risk is very low that they will lose money.

Home equity loans and HELOC’s are very similar in that they both act as a second mortgage, if you default on the loan the lender will foreclose your home. Both loans use your home as collateral against the loan meaning they are both secured loans.

HELOC’s can be very useful in their functions, but can sometimes be over used when consumers feel like it’s free money. If you have good control of your spending habits then a Home equity line of credit loans can be a good way to keep emergency funds for “just in case” situations. People who don’t have good control over their spending should not take out HELOC because of the risk. If you take out a HELOC and can’t pay it back, then you will lose your home, simple as that. If you can’t afford it then don’t take it.

When looking for home equity line of credit loans you should consult your first mortgage lender. Often lenders are very willing to give a second mortgage on the equity in your home if you have a good payment history of paying your bills. Other things you can do would be to check online and see if there are other competitive rates available for HELOC loans.

• Home Equity Loan