| Home equity loans are a way of using the money that | | | | granted a home equity line of credit, the bank |
| you've invested in your mortgage by borrowing against | | | | establishes a 'line of credit' - which functions just the |
| it. Essentially, a home equity loan is a 'second | | | | way that a 'credit limit' does on your credit card. You |
| mortgage' - a loan secured by your property. If you | | | | may receive special checks or a plastic card with |
| don't make good on your payments, the lending | | | | which to access your line of credit - but you don't |
| company or bank can force the sale of your house to | | | | receive the full amount at one time. |
| recover their money. | | | | In fact, you don't have to take any of it immediately. |
| There are two major types of home equity loans - | | | | You can draw on the line of credit at any time, up to |
| home equity loans and home equity lines of credit, also | | | | the full amount of the line of credit throughout the |
| called HELOCs. Most lenders that offer home equity | | | | agreed-upon life of the loan. Suppose that you're doing |
| loans offer both kinds. A home equity loan for $10,000 | | | | some home repairs. You can use your home equity |
| and a home equity line of credit for $10,000 are two | | | | line of credit to pay for $2,000 worth of roofing tiles. |
| completely different animals though they have a lot of | | | | That leaves you $8,000 in your line of credit. Three |
| similar features. | | | | weeks later, you can use your line of credit to pay for |
| Home Equity Loan | | | | $4,500 worth of windows - and still have $3,500 left |
| If you apply for and are granted a home equity loan | | | | that you can borrow against. |
| for $10,000 at 7% APR for 15 years, you will receive a | | | | If you then start paying back on your home equity line |
| check or a deposit to your bank account of $10,000. | | | | of credit, that money becomes available to you again. |
| That is the full amount of the loan that you can ever | | | | If you pay back $1,000 of what you've borrowed, you |
| draw on that particular application. Depending on the | | | | now have $4,500 on your line of credit. |
| terms agreed upon, you may have one to several | | | | A home equity line of credit has two 'phases' - there is |
| months before you have to begin repaying the loan. | | | | the draw period, during which time you can draw |
| You'll pay a fixed amount every month until the full | | | | against the credit limit as long as you stay below the |
| amount of the loan and the interest charge is paid off. | | | | limit. During that time, you can elect to only pay the |
| You'll know from the very start how much you'll be | | | | interest that accrues - or you can make payments on |
| repaying. | | | | the principal to free it up. Once the draw period is over, |
| Home Equity Line of Credit | | | | you go into the repayment period. During the |
| A home equity line of credit - a HELOC - is much | | | | repayment period, you can't draw against the line of |
| more like a credit card. When you apply for and are | | | | credit any longer, and must make full repayment. |