Getting a Home Equity Credit Loan
Home equity credit loans are a vital option for every homeowner. These loans allow a homeowner to realize some of the value of their home without having to sell the home. Home equity credit loans allow homeowners to add additions, put in pools, repair damage, or even send their children to college.
There are generally two types of home equity credit loans:
- Home equity loan or HELOC.
- Home equity line of credit or HELOC.
Home Equity loan
A home equity loan allows the homeowner to use the equity in their home as collateral. The loan is collateralized or secured by the physical home. In many cases, a home equity loan is not repaid until the home is sold, but the homeowner may repay the loan before this time if able.
A home equity loan comes in the form of a large lump sum deposited by a lending institution into the homeowner's account. The loan rate charged is usually tax deductible. You do have to pay the rate so it is a good idea to compare offers from various lending institutions to get the lowest rate.
Home Equity Line of Credit
A home equity line of credit acts like a credit card with the physical home being used as collateral. A homeowner applies to a lending institution for a line of credit and once approved, can write checks from the account. This line of credit must eventually be paid off, or the homeowner risks losing their home. Beware of a home equity loan that requires a large balloon payment at the conclusion of the loan.
These payments are often difficult to make and can result in more borrowing. This type of loan also encourages one to spend more freely, so it is wise to keep a steady eye on the balance.
There are a few things to consider when looking at a home equity line of credit. Watch out for financial penalties, there should be no pre-payment penalty on the loan. Also, your lender should not try to charge account maintenance fees or check fees.
Items to consider when applying for a home equity credit loans
- Your credit score
- Current value of your home
- Current balance of your mortgage
- Amount of additional cash you would like to borrow
Once you have collected the information listed above, you may approach a lending institution like a bank or credit union. The better your credit score, the more likelihood you have of securing a loan with an excellent interest rate. The lender will take all these factors into consideration before granting or denying a home equity credit loan.