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When deciding if an equity line of credit or loan is better for you, you must decide if you would prefer a lump sum with a fixed interest rate, or a line of credit with that you can utilize whenever you want. Get more information that will help you determine if an equity loan or line of credit is right for you.

Home Equity Loans

Home Equity Lines of Credit

Lump sum loan. Revolving line of credit.
Longer, fixed rate loan terms. Offers interest only periods.
These types of loans are good for projects that require immediate funding, like home repairs. These types of loans are good for funding long term situations, like college.



Home Equity Loans
A home equity loan is a fixed rate loan, making it a second mortgage. Meaning, you are agreeing to pay back the amount you borrow with monthly payments for a term of 10 to 30 years. These types of loans are usually the best option if you need a certain amount all at once -- for home improvements, or perhaps to start a new business venture.

There are great tax breaks for home equity loan interest rates.

Payback terms of home equity loans:
If your equity loan is for 30 years, then you will have to settle your loan after said time. However, if you are selling your home you will be obligated to repay your equity loan at the same time as when you settle your first mortgage, at closing.

Since you have two mortgages, there is a minor additional fee that you will have to pay when clearing your title. The lawyer handling your closing will prepare the additional release which will cost anywhere from $10-50. Learn more about the cost of equity loans.

Home Equity Lines of Credit
These types of loans eliminate the sureness of an equity loan, but offer more flexibility.  You can borrow when you want, as much as you want. You can write a check, and the money is yours. Payments are also more open. Interest only loans are available for say, five years or more, or less. With an equity line of credit you only pay interest on the amount of money that you are borrowing. So, if you do not borrow any money, you will not owe any money.

Payback terms of home equity lines of credit:
Typical home equity lines are shorter than 30 year mortgages. Equity lines of credit are divided into two period, a 'draw' period and a 'payback' period.  During the the 'draw' period, you can borrow as much as you want. When you payback the amount you borrow, your credit limit is replenished. The draw period is established in the terms of the loan and can be extended when it expires. However if you can not or do not renew your draw period, you can not borrow anymore and will have to payback your loan. This period is called the 'payback' period. The 'payback' period is usually 5-10 years.

How much cash can I get from the equity of my home?
The equity of your home is the difference of what your house is worth, and how much you owe on it. For example, if your house is worth $300,000, and you owe $150,000, you have $150,000 worth of equity available for a loan or line of credit. There are some simple practices you can follow to build the equity of your home.

However, Star Loan Services is able to offer equity loans and lines of credit more than 100% of your home's equity. Our LTV, loan-to-value is typically 125%. So, using the same numbers above, with a 125% LTV, you would have $225,000 worth of available equity. Learn more about 125% equity financing.



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