What is the difference between a home equity loan and a line of credit?
People sometimes decide to take out a home equity loan or a home equity line of credit. The money can be used to pay for a child’s college tuition, home improvement, or any other major expense. Some of the differences between a home equity loan and a line of credit is that the loan is a lump sum paid, but the line of credit is money that can be deducted as needed
Home equity loan
A home equity loan is closing costs, but a line of credit generally has none
As well as a line of credit is a variable rate, but a home equity loan generally has a fixed interest rate. Careful consideration of the differences between a home equity loan and credit line can help a person choose the solution that is best for him and her.
A home equity loan gives the homeowner a lump sum of money, and a line of credit allows the owner to draw on a lump sum of money when he or she needs it. There is not necessarily a better option than the others when it comes to choosing between a home equity loan and a line of credit
It often just depends on which way the homeowner wants to receive his or her money. If he or she has a large expense at once, then home equity loan may be a better choice. Access to cash for more expenses or a number of costs over a period of time can make a line of credit better choices because the homeowner could avoid the closing costs that would be charged if he or she took several home loan capital.
Home loan capital incur closing costs, but most credit lines do not. It makes a line of credit tempting for many, but it should also be kept in mind that some lenders charge a fee for each disbursal from a line of credit. If a person ends up needing more than one home equity line of credit, he or she will incur closing costs each time he or she takes a loan.
The interest rate is an important factor in making the choice a home equity loan and line of credit to many people. A line of credit is the interest rate typically variable, which means it can go up or down. Home loan capital generally has a fixed rate, so homeowner knows exactly what rate he or she will pay. Weighing all options helps a homeowner decide which choices to make.