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When considering a
home loan to access your home equity
most consumers will usually bring up the
question of a Home Equity Line
or Home Equity
Loan? Both program have unique advantages and disadvantages which we
will discuss. It's also very possible to
access your home equity by refinancing - (see
our refinance section or search Zoogage for
topics on cash out refinance).
1. The Home Equity Loan (aka
Second Mortgage)
A second mortgage
or a Home Equity Loan is very similar to a
first mortgage. These programs allow you to access some of your
home equity and generally involve a fixed
payment schedule for the term of the loan.
The downfall is you do not have the option of
re-drawing against your loan as principal is
paid down.
2. The Home Equity Line of
Credit (HELOC)
The most popular
form of home equity financing is the Home Equity
Line of Credit (commonly referred to by its
acronym - HELOC). A HELOC works similar to a credit card or line of credit. Shortly after
closing your lender will provide you with a
checkbook and/or debit card where you can draw
from, pay down and re-draw from without having
to qualify again. Other
benefits include
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Flexibility to borrow only as much as
you need |
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Payments based on only the amount of
credit used - not the limit.
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Access to a large line of
credit for unexpected life events.
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Potentially secure a lower rate than
fixed rate second mortgages.
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Subject to specific limitations,
still enjoy Interest payments
which are generally tax deductible.
(Consult with a tax professional to
determine the applicability of any tax deduction
to your individual circumstance)
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