There are two types of home equity loans available; Standard Home Equity Loans and Home Equity Lines of credit. With a Standard Home Equity Loan, your loan is assured by the amount of equity you have in your home. This is the type of loan option you should choose if you are in need of a very large loan. A Home Equity Line of Credit is akin to a credit card. With this option, you can withdraw money from an equity account that has been set up with your equity amount. This is a better option for you if you are not needing a large amount of money.
A Standard Home Equity loan generally is a little more difficult to obtain, only because it has a more complex process. These loans generally have a fixed term to them, meaning you will have a pre-determined number of payments over a set period of time. They generally will also have a fixed interest rate and fixed monthly payment. The amount of the loan you receive will be provided to you in one lump sum.
With a Home Equity Line of Credit, an account is set up for the money to be placed into. You can then make withdraws on the money as you need it, and then make payments back into the account. These types of loans generally have a fluctuating rate of interest, however you will only have to pay this interest if you have a balance on your account from the money you have borrowed.
There are many reasons why a person may choose to take out a Home Equity Loan. Many people take out these kinds of loans if their home is in need of repair or reconstruction. If there are large changes they want to make, such as a new heating and cooling unit or new windows, they will take out a home equity loan to pay for them. Others will use a home equity loan as a means to get out of other debts. They will use their Home Equity loan as a form of debt consolidation, to pay off some of their other debts and only have to make one monthly payment. And still others may take out a loan to pay for a new car, or even a large family vacation.
There are countless reasons why a person may choose a home equity loan. Once you get the money, it’s up to you what you choose to do with it. Just keep in mind that this is a loan you will have to pay back, and if you fail to do so, it could very well cost you your home and all of your equity.
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