Homeowners who find themselves in need of money can use their home to get a home equity loan or take out a home equity line of credit. Both of these options provide the individual with money to use, but they work a little differently. The greatest thing is that the interest rates are typically lower than those of credit cards or other loans. Below, individuals will get important tips for understanding the fixed rate equity loan.
What is the Difference?
With a fixed rate equity loan, an individual receives a lump sum of money that can be used for whatever the individual needs. The individual then has a fixed payment, which must be paid every month in order to pay off the fixed rate equity loan. However, with a line of credit, the individual is extended a certain amount of money that they can use slowly – as they need it. This is similar to a credit card. The individual then has a minimum payment, which must be paid each month, although they can choose to pay more.
Benefits of Fixed Rate Equity Loan
There are many benefits of a fixed rate equity loan, including fixed payments. The borrower knows the amount he or she must pay every month and rather than paying off only the interest, he or she will be paying off the balance of the loan as well. The large sum of money up front allows individuals to obtain larger purchases that they need, such as a vehicle or college tuition. To learn more about the benefits of a fixed equity loan, visit loansinaflash.
Both the home equity loan and the line of credit carry higher interest rates than a first home mortgage. However, there is a difference in the two. The fixed rate equity loan typically has lower interest rates than the line of credit. Most lenders give individuals the option of choosing a fluctuating interest rate or a fixed interest rate with the home equity loan. This allows individuals to choose what kind of interest they will be paying. With the fixed interest, individuals can ensure that their interest payments never increase for the life of the loan.
How to Determine Which is Best
While there are benefits to both options, it’s important for the homeowner to determine which option is best for him or her. Typically, individuals seeking larger purchases such as that of a vehicle, college tuition or a major home renovation will choose the home equity fixed loan. They receive a higher amount of money and a fixed rate to pay off each month. Individuals with smaller needs here and there may choose the line of credit, which they can use as needed. Also, with the line of credit these individuals’ payments will be determined by what balance is owed and how much of the credit has been used.
By using the information above, individuals can compare the home equity fixed loan and the home equity line of credit to determine which option suits them best.