Anchor Intro: While the credit crunch has made borrowing for...or against...your home more difficult, home equity loans and lines of credit remain popular for those with equity. Bankrate.com explains what these loans do and who should consider them.
Voice-over 1: When you own a home, you're building
equity. And a lot of people use that equity as collateral to borrow
Voice-over 2: Especially when you're borrowing
for a big purchase. Home equity loans offer tax-deductible interest,
lower rates and longer payback, so they can be a smart idea.
Voice-over 3: But the first thing you need
to think about when you're drawing up that borrowing plan is which
type of equity loan you're looking for…a regular loan or a line
Voice-over 4: What's the difference? A home
equity loan is really just a second mortgage, and it acts like a
first mortgage. You lock in an interest rate, your payments are
fixed, and so is the amount of time you have to pay the loan. A
line of credit is more like a credit card. The interest rate can
fluctuate, you can draw on it, or not, at your whim, and your payments
and length of the loan will change accordingly.
Voice-over 5: So which should you use? Well,
now that you know the difference, make the loan fit the purpose.
Voice-over 6: In other words, if you're borrowing
for a non-recurring expense, like a home addition, use a fixed loan,
like a home equity loan.
Voice-over 7: But if you're going to be taking
out a little here and paying back a little there, like when for
education, a line of credit may make more sense.
Standup: But here's a warning: In parts of
the country where prices are falling, some lenders have been canceling
approved lines of credit with little or no notice. So consider that
if the bubble has burst in your neighborhood and plan accordingly.
For Bankrate.com, I'm Kristin Arnold.