রবিবার, ২৯ এপ্রিল, ২০১২

Repairing Your Home With Home Equity Loan vs Line of Credit


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By: Sean A.

Home owners nowadays have more options when it comes to funding the remodeling or repair of their homes. Whether you wish to remodel your home because you want to improve its market value or simply because you wish to make your home more beautiful, the availability of various loan options from various financial institutions gives you more choices. However, among the most popular choices, many people would like to evaluate home equity loan vs line of credit. This may be because the two types of loans are directly related to the property market. Many experts may also advice that you do not fund your home repair by using your credit card. Taking a personal loan from unscrupulous lenders may also work against your advantage because they tend to be predatory and you run the risk of losing your home without being able to defend it at all.

When it comes to deciding between home equity loan vs line of credit you may have to compare the pros and cons of both choices. Once you have assessed the good and the bad of both choices you may then see which choice best suit your goal and also your financial capabilities. This may be because both choices are still loans so you may have to start paying off the loan probably even before the remodeling works on your home are done. Both loans, in essence, are almost the same. Both loans put your home up as collateral. This means that if you default on the payments your creditor may exercise their rights to claim ownership on your home. So whichever loan you choose you may have to consider whether you can actually afford it. However, both loans may also be different from each other in terms of execution and distribution of funds.

Generally, a home equity loan may be one of the favorites for home owners to finance their home remodeling or repair. It is known as a closed end second mortgage. Prior to applying for the loan you may have to decide on the amount of money you need to fund the repair of your home. You may want to bear in mind that the cost of your home repair may need to be less or the same as the equity of your home. If your application for the loan is approved, you may receive the money in one lump sum. Compared to a personal loan or a credit card, it has a lower interest rate. The interest rate you have to pay may also be tax deductible. Many financial experts may advice that you be careful so as not to spend the money on anything other than remodeling your home simply because that may have been the reason you sought the loan in the first place.

On the other hand, a home equity line of credit may be considered almost like a second mortgage but with different terms. You may think of it as a combination of a credit card and an equity loan because the money may be withdrawn in stages. Additional money may even be withdrawn a few years after taking up the loan. Of course, this type of loan may benefit you more if the repair you intend to make on your home may have unexpected expenses or if you foresee more expansion in later years. If you do opt for this loan, you may even choose to secure a low interest only payment option so that should you decide to borrow more money later you may still have a manageable monthly payment amount.

Once you have determined the type of loan that suits your purpose, you may proceed to apply for the loan of your choice. However, you may want to keep in mind that even if you wish to repair your home to increase its value, the wear and tear that caused the need to repair in the first place probably reduced the value of your home so by repairing it you may only be bringing the value back to its original value.

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