Home Equity Loans vs. Lines of Credit
If you are thinking about a home equity line of credit you also might want to consider a more traditional second mortgage loan. This type of loan provides you with a fixed amount of money repayable in fixed installments over a fixed term. Therefore, you might consider a second mortgage loan instead of a home equity line if you need a certain amount of money for a specific purpose, such as an addition to your home.Before deciding which type of loan best suits your needs, consider the costs under the two alternatives. Look at the interest rate and other charges. You cannot simply compare the APR for a traditional mortgage loan with the APR for a home equity line because the APRs are figured differently: the APR for a traditional mortgage takes into account the interest rate charged plus points and other finance charges, while the APR for a home equity line is based on the periodic interest rate alone, and does not include points or other charges.
This information is adapted from "What You Should Know About Home Equity Lines of Credit When Your Home Is on the Line" published by the Federal Reserve Board and the Office of Thrift Supervision.
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