Higher Annual Percentage Rate (APR): interest rate, points and other finance fees.
Lower Annual Percentage Rate (APR): just based on the periodic interest rate.
Appraisal
Appraisal
Closing Costs: attorney fees, title search, document preparation and insurance. These are usually lower than a first mortgage.
Closing Costs: attorney fees, title search, mortgage preparation and filing, and property and title insurance. This could be waived.
Early Pay-Off Fee
Early Closure Fee
Annual Maintenance Fee
Application Fee
Arrangement Fee
Up-front Charges
Stamp Duty
Origination Fee
Differences:
Home Equity Loan
Home Equity Line of Credit (HELOC
Interest Rate
You have the choice of obtaining an adjustable rate (which fluctuates with the prime rate) or a fixed rate. With a fixed rate, you can obtain the entire loan at closing and the rate maintains constant over the period of the loan.
You can draw out the money anytime until a predetermined limit. You only pay interest rate on the amount you use. The interest rate changes every quarter over the period of the loan based on the prime rate.
What You Get
A set amount of money. You can borrow up to 100% or even 125% of the equity value of your home (value minus first mortgage debt and other debts).
A revolving credit. You can borrow with a credit limit up to 100% or even 125% of the value of your home (value minus all debts).
How To Qualify
You need to have proof of your income, home ownership, and at least 20% of your home value is paid off. An appraisal is normally required.
You need to have proof of your income, home ownership, mortgage, and the amount of equity in your home. An appraisal is normally required.
How To Repay It
Fixed payments of interest and principal over a specified period of time.
Monthly minimum payments. It can be as little as just the interest rate for that month. However, in the end, you would need to pay back the total amount borrowed with interest rate.
How Long It Lasts
You can draw on the line (until the credit limit) in a 10 to 20 years period. After this period, you would have a certain amount of time to pay back the outstanding balance and interest.
It can be anywhere from a year to 30 years.
How You Receive The Money
One up-front lump sum.
Draw funds when you need the money by using special checks.
Tip
Best for people who needs a large amount of money all at once (short-term).
Best for people who needs a large amount of money on going (long-term).
Similarities
The amount you can borrow from both loans depends on your income, debts, the value of your home, mortgage balance and your credit history.
Both have interest rates lower than credit cards and normal bank personal loans. This is because the home equity loan and HELOC are secured against your home.
Both could have tax advantages with deductible interest. You should consolidate your tax accountant or CPA for more information.
Both use your home as collateral, so your home could be at risk if you default on a loan. Tip: make sure you have the ability to pay the monthly payments.
You can make monthly payments by using automatic transfers from your Pentagon Federal accounts
