Borrowing against your home has several options. Carefully consider your needs, the risk of your ability to pay these added expenses and the use of the funds you will be withdrawing against your home.
Equity Line of Credit
1. A prime equity line of credit is an interest only line of credit taken against the value of your home. Like a credit card you can borrow, repay and re-borrow money. During the draw period there are only requirements to pay the interest on what you have borrowed. There is a credit limit, but you can withdraw amounts up to the limit at your discretion.
Home Equity Loan
2. A home equity loan is a standard second mortgage borrowed against the accrued value of your home. A specific amount, specific interest and set payments are laid out at the beginning of the agreement. You will receive the agreed upon amount once the papers are signed, and the repayment of this secondary mortgage begins immediately.
Variables
3. Equity lines of credit and equity loans both require fees and costs to set up. Interest rates can vary, and the amount of funds needed should be considered in relation to the type of product you are choosing. If you need funds to repay debt a line of credit on your home may offer a lower interest rate and consolidating the debt may save you money.
For home improvements that are a set cost, an equity loan can lock in your rate and the bank may offer you a no-closing-cost loan. Remember that a home equity line of credit can be frozen if the value of your home drops significantly or your financial situation changes.
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