What Type of Loan is Best for Me·
Posted By: Dr. Frugal in Loans on 06/12/2007 at 10:23:22
Home equity loans are best suited for times when you need a lump sum of money. Lines of credit are best if you need the money at intervals, so you borrow only what you need, when it's needed. Lines of credit can be dangerous if you have trouble controlling credit card debt because they are very similar to credit cards. There is one very important difference though: With a home equity line of credit your home is at stake. If you get in trouble, you could lose your house.
Home equity loans are attractive for a number of reasons. Their rates are higher than interest rates on first mortgages but much lower than credit card interest rates. Interest on home equity loans is also tax-deductible. Closing costs for home equity loans are similar to those of your first mortgage. Expect to pay between 2-5% of the loan amount in fees.
You can't use the APR to compare home equity lines of credit and home equity loans because the APR for a line of credit does not include fees or point and will be misleadingly low if you try to compare it to the APR of a home loan.
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