A home equity line of credit is a loan that you take out using your home as collateral. This is a revolving line of credit that you can access as needed. It is different from a second mortgage, which gives you a lump sum of money at one time, and then you work to pay that money back according to the terms of the loan. A home equity line of credit gives you more flexibility and is ideal if you are remodeling your home or if you will need different amounts of money at different times.
The home equity line of credit is also commonly referred to as a HELOC. Banks will offer them against the equity that you have built up in your home over the years. This allows you to cash in on the money you have put into your largest investment while still continuing to live in your home.
Many people will use a HELOC to pay for remodeling or to help pay for a wedding or college. The bank will give you checks to your HELOC, which you can write to businesses to pay for bills or to transfer money to your bank accounts.
The lower home equity line of credit rates makes taking out this loan more appealing then taking out a personal line of credit or using a credit card. A home equity line of credit works similarly to a credit card, because it is a revolving line of credit that you can pay down and then use again. The home equity line of credit rates are much lower than credit card rates. Additionally, the interest you pay can be tax deductible, just like traditional mortgage loans.
A home equity line of credit calculator will help you to estimate your monthly payments before you take out more money. It can also help you determine how quickly you want to pay off the loan. Your monthly payment will vary depending on how much you currently owe on your home equity line of credit. The payment is based on a percentage of the total amount you owe, with a minimum monthly payment amount. The terms for your loan will be explained specifically in the paperwork you sign when you take out the loan.
A home equity line can be used to pay down your credit cards. Since the interest rate is lower than credit cards, a home equity line makes it easier to pay off the money you owe since more of it will be applied to the principal of the loan. However, if you do use a home equity line to pay off your credit cards, you will need to stop using your credit cards so that you do not run up additional debt that will be difficult pay off.
It is important to understand the differences of a home equity loan vs. a line of credit. The biggest difference is that your home equity loan uses your home as collateral. This means that if you default on the loan, the bank can take your home to cover the loan. A line of credit is not tied to something, which means it has higher interest rates and lacks the tax advantages of a home equity loan.