| Home Equity
Fundamentally, there are two types
of home equity loans.
Home Equity Line:
When you get a home equity line, you obtain
the right to draw money, whenever you want, over a
certain period of time. You only pay interest on the
amount you borrow. You may borrow, pay off and borrow
again against the line of credit. You typically access
the line with a check or credit card.
Second Mortgage (home equity
loan):
When you get a second mortgage, you obtain
a lump sum of money. The interest rate and monthly
payments are fixed.
Which one is right for you?
Before deciding which type of loan you want, consider
how you'll use the money. If you need funds for a
single expense, such as a room addition, remodeling,
etc., you'll want to strongly consider a fixed-rate,
second mortgage. You receive one lump sum at the beginning
of the loan term. You pay it back in equal, monthly
installments.
The certainty of a fixed interest rate and equal
monthly payments make the fixed-rate, second loan
very attractive. Will this type of loan be less expensive
compared to an adjustable rate, home equity line?
There is no way to know with certainty. One would
have to be able to predict interest rates with accuracy.
If you need periodic amounts of money over time,
for a child's education tuition, for example, a home
equity line may be ideal. You can borrow only the
amount you need, when you need it. These loans carry
adjustable (ARM) rates, but some banks allow you to
convert a portion of your loan to a fixed-rate second.
You may pay a premium for the convenience of an equity
line, including a transaction fee for each draw and
an annual fee if you draw or not.
How We Can Help
Deciding in advance which type of equity loan is best
for you helps when comparing the expense of various
loans. With your input we can determine which loan is
right for you. Contact us for
more information on Home Equity Loans.
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