Home Equity LOC vs Home Equity Loan? Confused...

[Kitzka]

HI everyone:

my questions are basiclly 2 fold. What is the difference between a Home Equity Line of Credit and a a Home Equity Loan?

DH and I are looking to get some work done on our house and dont have quiet enough saved up for it. Some things like redoing the bathroom can wait but some of the wood is rotting on our roof an i really want to get the whole thing redone before the winter.

We have been in our home for 8 years. We refinacned about 6 months ago and our home was appraised then at 350k. when we refinanced, the mortgage was only for $165k. Our monthly payment is not a struggle to make and we have doubled and once tripled our mortgage payment to pay down the principle.

If it wasn't for the fact that the roof has rotted we would wait to save up the cash to get it done in the spring but i am worried that this winter will be a tough one and don't want it to get any worse.

SO, my question is do i get a HE Loan or Line of credit and can we go to any bank or do we have to go with the bank who holds our mortgage?

Sorry, if these seem like dumb questions but when it comes to this kind of thing i don't really know and when i looked it up it just made me more confused.

Lara

 

[GrnMtnMan]

You can get the loans/LOCs through any bank. Shop around to see who offers the best deal.

A home equity line of credit (HELOC) is like a credit card in that the money is not disbursed until you need it. You apply for the LOC, get approved for some amount, and then draw the money by using the checks they provide with that account. Usually LOCs have adjustable interest rates that change monthly...as does your payment. You'll often have the option to fix the interest rate when you close the LOC to further draws.

A home equity loan is a plain old loan. You get the money the day it closes and use it the way you see fit. But banks usually won't give you a straight home equity loan unless you tell them your using it for something related to your house. Usually the interest rate will be fixed for the life of the loan, with steady payments.

People will often have open HELOC that have nothing drawn in case of emergency...or to buy something unrelated to you home, like a car.

This page at Lending Tree has a good explanation of the differences.

PS...if you plan to pay off quickly, like in a few months, a HELOC is probably the way to go.

 

[Kitzka]

thanks! the lending tree link didn't shjow up in any of my searches and i had no idea there were closing costs!

Lara

 

[michellelovesthemous]

Shop around, look into credit unions, some have no closing costs!! Depending on the bank/cu you may not need checks for the loc and may be able to do on line transfers.
Also something to consider the HE Loan can be based on the the formula of Value of Home - Mortgage balance = HE for example (value) 200K - 125K (mortgage balance owed) = 75K HELOC or bank/cu may only to a percentage of the value. Ex: 80% value 200k x 80%=160K 160k - 125k (mortg. bal) = 35K HELOC

Look for the best rate with the least fees/cost to you, also check on pre-payment penalties or fees on the back end when you pay it off or lock in fees if you want to go from variable to a fixed rate. Good Luck