Differences from conventional loans

Differences from conventional loans

May 10

On most of the sites you will find Home equity line of credit basically described as standing for a line of credit extended to a homeowner that uses the borrower’s home as collateral where once a maximum loan balance is established, the homeowner may draw the line of credit at his or her discretion. Home equity line of credit is for a specified period of a time, these loans are completely dependent on the equity of your house wherein the interest is charged on a predetermined rate which is varying and is usually based on prevailing prime lending rates.

Repayment of the loans

Now when there is a balance accumulated on the loan, the owner of the house can choose the repayment schedule provided the minimum interest payments are being made on a monthly basis. The duration of a home equity line of credit can last as long as 20 years and as less as 5 years on the least. By the end of this term it is necessary that all the pending balance is paid in full.

Basic points of difference with the traditional loans

You can understand it as being different from other loans on a fundamental basis wherein it does not give away the entire loan at once; instead it keeps a line of credit which cannot cross the maximum predetermined limit. These loans are very different from all the traditional loans that give the entire amount cited as a loan at once. It is more like a MasterCard service.

The term of 5 to 25 years that has been mentioned earlier in the definition is the term known as the draw period which stands for the time at which you can draw cash from your loan amount. When the closing of loan is done you will have full knowledge of the loan amount. You might just need to pay what you used against the HELOC loan and you may just have to pay the interest as the monthly payments if you keep the time gap to the minimum.

But in case if you exceed the minimum then the option for you will be to decide when and in what amount you want to pay back. Always try and bear in mind while managing the payment that the entire loan amount obligation has to be met once the draw period of the loan gets over. You can do this with the help of the loan amortization method or in a balloon payment fashion.

Interest Rates applicable

The HELOC loans are very much different from the traditional loans. The rates that are involved in HELOC change, the following rates will not be same as the primary rate. The difference between the prime rate and the rate is what the borrower’s pay and each lender happens to calculate this margin differently so you will have to be cautious about it.

These loans happen to be particularly famous in the United States since the interest is tax deductible on both the federal and state taxes. The other reason for these loans being really famous with the masses is that these loans are very versatile where their repayment is considered. The repayment totally depends on the will of the borrower.

But do not let this one thing cover every other significant aspect; surely you can pay when you choose to but never take this liberty for granted as the collateral is a very valuable asset, your house. And in case if something goes wrong your house is directly in the way of complications and proceedings. When dealing with HELOC loans o keep this one point in mind at all times. If you have already got into this much dreaded problem them immediately consult an expert.

Thus home equity line of credit offers a new lifeline to the people desperately in need of money after every fixed interval. Such needs cannot be met with the general loans, which is merely because the amount involved is generally huge. None of the loans be it personal loans or any other loans are capable to meet the requirements of the people and hence they have to resort to the home equity lines of credit. Not a very desired financial state but there’s no option out there for the people.