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Home Equity Loan vs. Home Equity Line of Credit

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Home Equity Loan vs. Home Equity Line of Credit

Old 08-31-05, 01:06 PM
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Home Equity Loan vs. Home Equity Line of Credit

We are looking to pay off some credit cards and use some money towards some small remodels. What are the advantages to both?

Also, what kind of rates should I be expecting to pay in California?

Should there be closing costs or prepayment penalties on either?
Old 08-31-05, 01:39 PM
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A home equity line of credit is like attaching a big credit card to your house, that much I know. Based on that alone, we didn't go with a particular mortgage company for suggesting that.
Old 08-31-05, 01:57 PM
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Here is the low down. With a LOC it is basically a credit card attached to your house with a set limit. You only pay for what you use. The bad thing is the interest is a variable rate. The good(bad for some) thing is you only need to pay interest every month on the loan. You can pay towards the principal but they only require a payment for interest. I think thats good because if you have a bad month you can pay a little less.


With a Home equity loan the amount is fixed and you take all of the money at once. Your monthly payments will be alot more because you will be paying towards the principal. Also the interenst rate is locked.


I would probably do the Home Equity loan if you can afford the payment..
Old 08-31-05, 02:41 PM
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Thanks for the responses. I've been reading up a little more on both. My wife likes the flexibility of the LOC as we're not sure exactly how much we are going to spend to remodel and it may not happen for a few months. However we want to get the credit cards paid off immediately and this gives us the money at a much lower interest rate than credit cards.

Does anyone know anything about a "fixed rate loan option" for a LOC? Washington Mutual is the bank we've been talking to if that helps.
Old 08-31-05, 03:09 PM
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I have a HLOC with Washington Mutual. I used it to buy another house and a commercial building. Being that I now had a decent amount of debt on it, I decided to go with the fixed rate loan option. Basically you use your line of credit but at any time you can take all or part of the balance and convert it to a regular loan repayment plan. That amount still affects your total limit. So for fun, if I have a $50,000 HLOC and used up $40,000 of it, I could put that $40,000 on a 10, 15, or 20 year fixed rate (that will run about 1.5% higher than the adjustable depending on term) and make payments on it, while still having $10,000 left on my line of credit.
Old 08-31-05, 03:14 PM
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You know, you won't be "paying off" the credit cards. You would simply be moving the debt (and that from an unsecured to a secured loan, i.e. putting a lien on your home), while also running up more debt on the remodeling. The extent to which Americans love debt, it's no wonder banks are so rich! I would recommend paying off the credit cards first. If you must go the HELOC route for the remodeling, at least you'd be improving the value of your home with that money. If you do decide to get a HE loan, go with a fixed rate, no adjustable, no balloon.
Old 08-31-05, 04:10 PM
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first this is not a good way to get out of debt if you keep spending money or if you end up maxing the credit cards out again, you are only digging yourself deeper into debt. Think about cutting up those cards (don't cancel them though that hurts your fico score) if you can't keep from using them again once they are paid off. But if you are ready to do something about your credit card debt this is a good way to lock into a low intrest thats tax deductable.
Old 08-31-05, 05:10 PM
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Originally Posted by taa455
You know, you won't be "paying off" the credit cards. You would simply be moving the debt (and that from an unsecured to a secured loan, i.e. putting a lien on your home), while also running up more debt on the remodeling. The extent to which Americans love debt, it's no wonder banks are so rich! I would recommend paying off the credit cards first. If you must go the HELOC route for the remodeling, at least you'd be improving the value of your home with that money. If you do decide to get a HE loan, go with a fixed rate, no adjustable, no balloon.

if he has credit card debt anyway, a home equity line is a much better alternative to credit card debt. credit cards can be between 8-22% depending on the card.

home loans have better interest rates and are tax deductible; therefore a much better solution.

if you are also taking out money to do home improvements, thats is POSITIVE debt. you are addding to the value of your home.

putting in a pool with that money? not really worth it.

a spa? nope.

doing something like landscaping/kitchen/addition/etc? DEFINATELY

if a builder puts on an addition that costs $40k, you will add about 60k in value to your house. Figure out how long it will take you to keep the 40k+ interest UNDER 60k and pay it off in that time.

Do that and you are in the plus.

Dumb americans take home equity loans out to go on vacation.

smart americans take HE loans out to add to their wealth.


I am doing 140k worth of work on my house right now. Do I have that kind of money? nope. does anyone?

But I can afford the additional payments and then some. My house is worth ~725k right now. Both the architecht and tax assesor told me it will be worth close to a million when I am done with the work.

I need a bigger house. Whats the difference if I use equity to buy this one or buy a new one with the additional payment? none. except now i get to stay in my house.

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