Equity Line Rates: The Other Credit Card

2007-03-08 10:33:40

( Financial )



EQUITY LOAN AND EQUITY LINE

There are two types of financial products that are based on your home’s equity or portion of the property that you have paid for - the home equity lines of credit or HELOC’s and the home equity loans. Both are second loans taken on top of your existing mortgage.

The main difference between an equity loan and an equity line is that equity loans are simple loans that you take whose value is based on your home’s equity value. Normally your mortgage lender will present you a loan-able value and you can opt to take the equity loan or not. The equity loan is usable within a certain period of time after which it can no longer be availed of.
Equity loan interest rates are generally lower because they are considered secured loans and are fixed for the duration of the equity loan.

THE MORE FLEXIBLE LINE

A home equity line of credit acts more like a revolving fund that you can draw from during the prescribed lifetime of the equity line. The lending company releases a credit line whose amount is based on your equity. You can use this amount on a staggered basis, drawing from it from time to time as you need or you use all of them in one go.

Compared to an equity loan, equity lines are more flexible because you can opt to use only a portion of the loan-able amount. This way you can use the money for whatever purpose without necessarily becoming heavily in debt once again. If the need for more funds arises, then you can draw from the equity line again.

Similar to an equity loan, equity line rates are also generally lower because they are considered low-risk loans. Equity line rates usually moves in accordance to the market’s prime rates. Depending on when you took the loan, your equity line rates will be based on the existing rates at that time.


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