Home Equity Loan and Home equity line of credit

A loan is a debt given by a financial organization or banks to a person or any firm with some rate fixed as an interest. It differentiates the actual amount, the interest rate and date of paying back the amount. A loan is given by setting a period of time so that the borrower has to pay the debts within that fixed period and also the bank or organization fixes certain amount to be paid in monthly terms as an interest rate. In a loan the borrower first gets a certain amount from the lender and goes with the contract to repay the money to the lender before the decided period of time.

The loan is always followed by the interest that is a cost that is fixed to be paid by the borrower. In the legal loan everything as such is carried out through a contract between the lender and the borrower. But in the legal loan the borrower has some restrictions. There are several types of loan offered by the banks or other financial firms like personal loan, vehicle loan, mortgage loan, home loan etc.

A home loan is a type of loan where the borrower gets a loan or a sum of money from the bank for his additional requirements like owning a house. A home equity loan is a little different from that of a home loan. The home equity loan is a loan in which the borrower uses the equity of his home as security. This type of home equity loans is used for the high expenses such as repairing the house, college education, medical bills etc. The home equity loan reduces the actual home equity by keeping the house of the borrower.

Home equity loan has two types, they are, closed end and open end. The closed end type is also termed as home equity loan and the open end is called as a home equity line of credit. Both are referred as second mortgages because they are secured against the value of property as in the traditional mortgage. The traditional loan and lines of credit are usually for a short term than the other mortgages. Home equity loan can be used as a person’s main mortgage in the traditional mortgage loans. A person cannot buy a home with a home equity loan as like the usual home loans because the traditional home equity loans are only for refinancing.

As mentioned above, there is a difference between home equity loan and the home equity line of credit. A home equity line of credit offer an adjustable interest rate, but the home equity loan requires a one-time payment or a lump sum amount with a fixed interest rate. Not only this but also there are several more differences found between the home equity loan and the home equity line of credit loan. The home equity loan requires a lump sum amount which might be a difficult thing for some people and also it has a fixed rate of interest but as in home equity line of credit loan it offers a altering or adjusting rate of interest for the borrower.

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