For people trying to take advantage of the equity in their homes, understanding the types of loans that are available can be daunting. However, once you understand the differences in loans, it can be just as difficult to comprehend the differences in loan rates. The easy explanation as to the differences between home equity loans and home equity lines of credit is risk.
In a home equity line of credit, the individual receiving the loan can use the line of credit over and over again. This is much like a credit card. Because of the ability to have access to this money for long periods of time, the lender is taking more risk. At any time, the borrower could default on the loan. Because of this, the interest rates on home equity lines of credit are usually higher.
With a fixed rate home equity loan, the borrower is given the total loan at one time. When the borrower receives the loan, the interest rate for the loan is set and usually never changes. In addition, the borrower is given the amount of each monthly repayment and how many years the repayment will take. Because this is much more fixed and absolute, the interest rate is usually lower.
For complete information on the differences and the advantages of each type of loan, speak to one of our experienced mortgage professionals at Downs Financial. We work with all types of mortgage loans, so we can give you the best advice for your unique situation. Complete our simple online registration form and we will contact you personally within 15 minutes with the information you need.