One who owns a house finds it easier to get loans than one who doesn't. One can easily obtain secured loans by using the house as collateral. Moreover, secured loans are a lot more affordable than the unsecured variety. Those who have no mortgages to pay should have no troubles in getting secured loans. Those who are still paying off the mortgage installments can make use of the equity on their home to avail of various kinds of other loans. More importantly, these days, there is no need to rely entirely on home equity loans. There are other lines of credit that one can go in for.
HELOC or Home Equity Line of Credit is one of the options that people are choosing instead of the home equity loan. In the case of HELOC, the bank provides a number of equity checks that may be used as and when to take a loan depending on one's equity balance. These equity checks, typically allow us to draw on a certain approved balance. The great thing about HELOC is that we are not required to take a lump sum all at one go. The checks give us the freedom to draw only the required amounts at the time.
This also means that the interest amount that we pay every month varies depending on the loan amounts that have been withdrawn. Moreover, the rates of interest for home equity lines of credit are variable. They vary according to changing market conditions. Thus, you might find yourself paying a higher interest rate one month, and a considerably lower one in the next. However, when selecting a loan, make sure that you go with the one that charges a lower APR overall. Also, make sure that you find out what the cap is on the interest that the lenders are charging. This rate cap is different across states and lenders.
Thus, a HELOC is very different from the traditional home equity loan. Whereas HELOC allows one to advance oneself varying loan amounts over a period of time, a home equity loan amount is obtained at a single time. Just as HELOC has variable rates, a home equity loan has fixed interest rates. This rate will not be subject to ups and downs depending on market conditions. As far as repayment terms are concerned, a home equity loan involves fixed monthly payments made over a fixed period of time. In HELOC, there is more flexibility. Overall, the two are very different, and which one you choose would depend on your own particular needs.
