Home Equity Line of Credit and Home Equity Loans
The Difference Between a Closed-End Second Mortgage and HELOC
Aug 5, 2009
Many homeowners make the decision to tap into home equity for various reasons. However, those same homeowners may not be sure as to which financial method to pursue.
If an individual is struggling between the idea of a closed-end second mortgage or a home equity line of credit, the following information may be a vital tool in the decision process.
Home Equity Loan Information
- The homeowner makes a one-time decision on the total amount he or she would like to borrow.
- The loan in question is closed, and the homeowner will be granted a check for the proper amount that he or she decided upon in this procedure.
- The homeowner will have routine payments organized over several years, and once the payment obligations have reached completion, the individual’s home equity will be officially paid in full.
- If the homeowner decides to take out additional funds at a later date, he or she will need to organize a new loan with additional closing costs.
- Home equity loans are structured around a fixed rate that will never increase, and the actual payment plan procedure will never change.
Home Equity Line of Credit (HELOC) Information
- HELOC is a line of credit (hence the name) from which an individual can withdraw funds numerous times.
- In the home equity line of credit process, the interest the homeowner pays is tax deductible and the individual will only close on a HELOC once.
- Homeowners who wish to take out additional money in the future will be able to do so up to the total value of the loan in question. Meaning, the homeowner may borrow money as long as the total amount borrowed does no surpass the total amount of the individual’s original HELOC.
Advantages of a Loan Officer or Financial Planner
Before a homeowner makes a final decision, it's wise to consult with his or her financial consultant. With the help of a financial expert, he or she will be able to help the homeowner make the best decision for his or her specific needs.
Home Equity Example:
If a homeowner is certain he or she will need to borrow against his or her home equity only once over the next several years, this financial plan could be the correct decision.
With a closed-end second mortgage plan, the homeowner will have the benefit of a solid fixed rate and payment schedule which will allow the individual to know how much the payment will be, and also the total duration of the payment process.
HELOC Example:
For a homeowner who knows he or she will be dealing with unforeseen expenses in the future due to home repairs or various home projects, a HELOC can be the most beneficial plan.
Individuals who decide to use HELOC have the ability to borrow several times and possibly receive a low interest-only payment plan. With a low interest payment method, the homeowner can continue to borrow funds while maintaining a solid and financially reasonable payment program each month.
Once again, it's certainly a wise decision to seek qualified financial assistance when dealing with matters of this nature. Seek professional help, and receive the best incentives possible by making the right economic decision.
Source
Bills.com
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