With the increase real estate property prices in Florida, you may be searching for viable avenues to use your home equity to obtain low-interest finance scheme to renovate your home. While considering various leading options, it is important for you to know the difference between a home equity loan (HEL) and a home equity line of credit (HELCO). In the former case, the finance company gives the residential owner a fixed sum of money, which the borrower secures from the equity in his/her home. On the other hand, a home equity line of credit is a form of revolving credit that permits house owner to borrow money from a financier if he/she has more than 20% equity in the property.
Difference between home equity loan and equity line of credit
The Florida home equity line of credit experts explain that in the case of a home equity loan the amount of money you can obtain from the finance company depends on a number of factors. These include your property’s loan to value ratio, the terms of repayment, your creditworthiness and verifiable income. Under this finance scheme, you have to pay the borrower fixed sum of money every month for a certain period at the rate of interest he prescribes, as per the market conditions. However, in the case of home equity line of credit, the financier allows you to borrow money after establishing your credit limit. The lender determines this maximum value after taking into consideration a percentage of your property’s appraisal value and deducting the amount of any mortgage you still have to repay from it. In addition to this, the corporate enterprise will also look into your income and credit history.
These two home financing options are similar in many respects but differ in the following two important areas:
- Interest rates
When you opt for a home equity loan, you pay a fixed rate of interest on the money you borrow from your financier. You can claim 100% tax deduction on this amount if you fulfill certain conditions as per the relevant tax laws applicable. The fixed rate implies that you know how much money you owe your lender as interest payments. On the other hand, a home equity line of credit has a variable rate of interest, which you will have to pay on the amount of money you borrow. The rate fluctuates according to an index that the U.S. Treasury bill rate determines.
- Repayment policy
The Florida home equity line of credit professionals go on to explain in case of a home equity loan, you pay back a fixed monthly installment to your financier. This installment includes both interest and principal payments. However, in the case of home equity line of credit, you have to pay your lender a monthly interest that fluctuates in accordance to U.S. Treasury bill rate.
The Florida home equity line of credit specialists say it is important for you to consider the advantages and drawbacks of each lending optionbefore taking the final decision.You should also shop for the finance companies that offer ideal rates of interest and policy terms that suit your needs.