Home Equity Loans Vs Home Equity Line of Credit

Home equity loans have increased in the recent times. If a person decides not to refinance his first mortgage and instead wants to have cash out of debt consolidation, then companies are lending their helping hand by lowering the refinance cost and increasing their homes' Equity. A home owner can borrow against the value of his house by two ways. One is called home equity line of credit and the other one is a home equity loan. Both are generally considered to be a second mortgage. While with the first one a person can draw amount up to a predetermined limit, whenever there is need for money. The other option provides for taking a lump sum by paying a fixed payment monthly over a period of time.

The amount drawn in each case will be based on several factors such as the income of the borrower, his debts if any, value of his home and his credit history. Both types of loans are appealing in their interest rates because they are secured against home. Often both these loans are tax deductible. Choosing either option depends on individual financial conditions. If a person needs to meet the expenses like college fees or medical bills, then Home Equity Line of Credit will best suit him. But both loans carry higher interest rates as compared to first mortgage.

With these loans, there are again two more options available. One is adjustable rate and the other is a fixed rate. And there will be closing costs which must be taken in to consideration. One can be free from any worry about increasing costs should interest rates rise. Home Equity Line of Credit provides lower initial rates as compared to loans. But there is a risk of more interest rate due to its fluctuating rates. But there are no closing costs for these loans. If a person gets tempted with the second type of loan, then he must be cautious as to not get in to more debt. Failing to repay will give way for the risk of losing his house.

To qualify for this credit, a person needs to provide proof of income, home ownership, and details about how much equity he has in his home. At least 20% of the value of the home must be paid off. An appraisal will help a lot.

For more information about California Refinance Loans.

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