The Difference Between Home Equity Loan and Line of Credit

When you commit to a home equity loan or a line of credit, you’re using your home as collateral. Make sure that you fully understand the terms of the loan or the line of credit. Only borrow the amount that fits within your budget. At GCU we are committed to find you the best home equity loan or line of credit that is suitable for you.

A home equity loan is a loan for a fixed amount of money that is secured by your home. You repay the loan with equal monthly payments over a period of time. If you don’t repay the loan, your lender can foreclose your home. Home equity loans are a way to finance large projects such as home improvements, paying for a family member’s college education, funding the purchase of a second home, or consolidating high-interest debt. Here are a few benefits for using a home equity loan:

1. You are provided a lump sum of money that you agree to pay back over 10 to 30 years with a fixed interest rate. You are protected from payment fluctuations throughout the life of the loan.

2. It is often suitable for a large, one-time expense. You will be able to receive the entire amount of your loan at one time.

3. It’s possible to be approved for up to 85% of your home’s equity.  The actual amount of the loan also depends on your income, credit history, and the market value of your home.

4. You’ll pay the loan back on a monthly repayment schedule, and your monthly interest payments will remain the same.

A home equity line of credit, also known as a HELOC, is the amount of credit the lender makes available to you based on the percentage of equity in your house. It is similar to a credit card when you borrow money as needed, any time you need it. You are able to borrow this money by writing a check or using a credit card connected to the account. Keep in mind that you are not allowed to exceed your credit limit. Since a HELOC is a line of credit, you make payments only on the amount you borrow, not on the full amount available. Similar to home equity loans, HELOC’s require you to use your home as collateral for this loan, as mentioned earlier. Here are a few benefits for using a HELOC:

1. The lender agrees to lend a maximum amount within an agreed term.

2. The borrower uses a line of credit to borrow sums that total no more than the credit limit. The repayment is the amount borrowed plus interest.

3. A HELOC generally has lower interest rates than a credit card.

4. A HELOC can be good to have for emergency funds when you don’t have time to apply for conventional loan approval.

5. Interest that you pay on a HELOC is usually tax-deductible.

If you don’t understand any loan terms and conditions, just ask.


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