Utilizing Your Home Equity: The HELOC versus a Standard Loan

By Kelly Richardson
LoanPage.com Columnist

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The home equity that you build up over time is your most valuable financial asset. There are several ways that you can utilize this money. Two of those are a HELOC loan and a standard equity loan. But which one is right for your situation? Heres a rundown of both types of home equity loans and what they mean in the long run.

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A home equity line of credit (HELOC) has fast become one of the more popular ways that homeowners utilize home equity. Similar in concept to a credit card, a home equity line of credit is a set loan figure that is allowed by a lender. You can borrow as much money as you want up to this set figure. But instead of borrowing a lump sum, you will borrow sums as needed until you have reached your limit. Here are some of the characteristics of a HELOC loan that you should know.

Home Equity Line of Credit

  • » Available Funds. HELOC loans can be borrowed instantly and you are only required to pay back the money that you use.
  • » The Payback. You will be responsible for paying back the full principal amount borrowed either in a lump-sum or according to a schedule.
  • » Variable Rates. HELOC loans have variable interest rates that can, and typically do, balloon towards the end of the draw period.
Traditional home equity loans are a bit more familiar to the borrowing public. A traditional home equity loan is a mortgage placed on real estate in exchange for cash to the borrower.

Home Equity Loan

  • » Percentage Borrowing. You can typically borrow up to 80% of the current value of your home if there are no liens on the property.
  • » Repayment. Most lending institutions allow borrowers to repay only a component of the interest accrued each month.
Knowing the difference between a HELOC loan and a traditional home equity loan will help you to make the right decision for your particular financial situation.

Sources:
The Federal Reserve Board

About the Author
Kelly Richardson covers the real estate scene in major cities across the country. His articles appear in educational journals, periodicals, and e-zines.

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