| Using your home equity is a very savvy way to | | | | types of lending is that home equity loans are a one |
| borrow large sums of money at a very low cost. | | | | time loan for large sum of money. A home equity line |
| While there are different types of loan products that | | | | of credit is an open account similar to a credit card |
| lenders offer, the two most common and popular are | | | | where you can borrow money at various installments. |
| the home equity loan and home equity credit line. | | | | Another important difference between both products |
| Before jumping into these two types of loan products, | | | | is that the loan usually always has a fixed loan rate. |
| it is important to understand the nature of these two | | | | The rate of the loan always stays the same for the |
| types of lending. Two terms that are extremely | | | | life of the loan. In a home equity line of credit, the |
| important are equity and collateral. Equity is a term that | | | | interest rate is variable and can increase or decrease |
| is used to describe the difference between the current | | | | throughout your repayment. |
| appraised value of your home and the amount of the | | | | Most people use these two products very differently. |
| money that you owe (mortgage). For instance, if your | | | | For instance, for people looking to purchase one large |
| home is currently valued at $300,000 and you own | | | | item using their home's equity, a loan is preferred. For |
| $100,000, your equity is equal to $200,000. | | | | instance, loans are used for adding an addition to your |
| Collateral is another term that you should be aware of, | | | | home or paying for college tuition. A line of credit is |
| whether in home equity loans or a home equity line of | | | | usually used for smaller sums of money that are |
| credit, it is important to note that you are putting up | | | | withdrawn over a period of time. For instance, many |
| your home as collateral. Collateral is a way to secure | | | | homeowners might use a line of credit to manage |
| your loan. If you are unable to repay your loan, the | | | | debt or to renovate their home piece by piece over |
| bank uses your home as collateral and can sell it to | | | | the course of a couple of years instead of all at one |
| recoup its losses. | | | | time. |
| The main difference between these two different | | | | |