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Understanding the Difference Between the Home Equity Loan and Line of Credit

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By : Flynna Jones    99 or more times read
Home equity loan lets you borrow cash by making your house as the collateral. This condition is not only good for home equity loan, but also for line of credit. It only means that in case you fail to settle the entire amount that you owe, your property will be sold by the lender so he can get in return the money that you borrowed from him. This is called second mortgage. Availing a second mortgage can arise when you badly need cash. But before entering into any agreement, it is best that you completely understand the whole concept of every loan option you have.

Home equity loan is similar to your first loan. When you want to avail this type of loan, you can declare the amount of money that you want to borrow. Once granted, you can quickly get the entire amount. The payment scheme for this will even out to the whole term that you chose. As soon as you have completely settled the amount, the home equity loan will not be settled and considered fully paid. So if you have plans of renewing your mortgage contract, you have to do some adjustments and arrangements with the lender on the additional fees which you would shoulder in the closing procedure.

Talking of line of credit, this loan allows you to borrow money again and again. It is just like your credit card but the rate is subject to tax credit. However, if you want to withdraw more cash, you have to disregard the loan value. You have to pay continuously to pay off the amount that you owe. Hence, the entire loan amount can be withdrawn anytime. Be sure that the amount that you borrowed and the amount that you owe is not higher to the entire amount of the line of credit.

Paying for the home equity loan has a fixed monthly payment. On the other hand, line of credit can differ depending on the interest rate, amount borrowed and if the loan is withdrawn. Keep in mind that you are only permitted to borrow the amount the same to your home equity. So if you have lower credit than the value of your house, you are not allowed to get either a home equity loan or line of credit.

The good about the home equity plan is that the interest that is charged on you is tax deductible. However, you need to be sure that you pay promptly otherwise the seller will sell the property.

Before finalizing everything, you need to secure that you have completely understood the policy of every mortgage plan. In this way, you can quickly think of ways on how to settle it in the event that you will be in a financial crisis.
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