Mortgage : Home Loans : Refinance : Home Equity Loans

By L. Sampson

Home equity lines of credits or HELOC, are revolving credit accounts that are protected by a home’s equity. Homeowners have many options for accessing their home’s equity. Home equity loans are ideal for obtaining a one-time lump sum of cash. On the other hand, if homeowners prefer an open line of credit, which enables them to borrow as needed, a HELOC is
a better option.

What is a HELOC?

When homeowners apply for a home equity line of credit, they obtain a credit line which uses their home as collateral. There are different types of home equity lines of credits. Some homeowners may obtain limits up to 75% of their home’s appraisal value, whereas others obtain limits that match the amount of equity.

The majority of home equity loans have a fixed term of 10 years. During this time, homeowners are able to withdraw funds as needed. Unlike home equity loans, monthly payments are not fixed. Payments are based on the dollar amount borrowed from the home equity line of credit, thus minimum monthly payments will fluctuate.

Benefits of a Fixed Rate HELOC

If choosing a home equity line of credit, homeowners may opt for a fixed rate. There are several benefits to choosing a fixed rate line of credit. The obvious reason is predictability.

Although monthly payment will fluctuate depending on the amount borrowed, homeowners will never have to worry about an interest rate hike during the 10 year period. Furthermore, a fixed rate line of credit will offer significant long-term savings

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This entry was posted on Wednesday, July 26th, 2006 at 3:54 am and is filed under Refinance. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.