What is an equity line of credit - HELOC Basics

Loans against the value of your home usually takes one of two forms: a loan or equity line of credit. While both terms are thrown around interchangeably, they are understood in very different forms of debt, it is important that differences between the two.

Equity loans give you a certain amount of money in a single amount. Such loans are perfect whether you're a large company is defined as the home improvement project. With this type of debt you have established a payment plan, so it is easier on the budget for the repayment of the loan.

So what is a "credit line mortgage? Unlike a loan, equity line of credit (also known by its acronym HELOC) offer a flexible amount of money over a longer period of time. As credit cards, HELOCs offer a credit line when you need to access funds.

The main advantage of a credit line is that you only pay interest on the funds are withdrawn. For example, you could use to get a HELOC for $ 50,000. But if only the U.S. $ 10,000 from his back, only pay interest on that amount, more than the sum of $ 50,000. Another advantage is that often there are no closing costs.

The disadvantage is that HELOCs usually, unlike fixed interest rate, a loan, the interest rate is variable. As interest rates increase to do so, the cost of your loan, sometimes dramatically. If you believe interest rates will increase in the future, as many experts, can not become a huge HELOC.

Another disadvantage is that your credit and income are revised every few years to see if you can afford to keep open the line. If you change your credit score, your bank may close your credit line.

At a time when HELOCs offer paltry interest rate that made them very attractive. However, prices on today's market for both types of debt are quite similar.