Refinancing using a Loan with Line of Credit

Some house-owners may decide to refinance using a home equity line of credit instead of a traditional home loan. Both loans have their own advantages and disadvantages that should be considered. The best way to understand if refinancing using home equity line of credit is worth it is to understand what such a loan actually is, what its differences from a traditional loan are, and the ways in which it may be used.

 

In this article, we shall go through each of these questions so that house-owners have a good idea of the loan, which they can use to determine the advantages of using a home equity line of credit for their refinance.

 

Home Equity Line of Credit Refinancing- What is it?

Home equity line of credit, also known as HELOC, basically, is a kind of loan according to whose terms house-owners have access to funds on the basis of their home's existing equity. Thus, this is not actually a loan, but something known as line of credit. It implies that a specific amount of funds is made available for the house-owner, and the house-owner can draw on hat line of credit when he needs funds.

 

The house-owner can make such withdrawals during a specified period. This period is called the draw period. Furthermore, the homeowner must maker a repayment of the funds he withdrew from his credit account in the draw period in a repayment period.

 

What are the differences between home equity line of credit and Home Equity Loans?

The difference between home equity loan and a home equity line of credit should not be too difficult to grasp. Although both are loans which are obtained based on the home's existing equity, the manner of fund disbursement in the two cases is vastly different. In case of the home equity loan, house-owners have access to the entire amount immediately.

 

However, in case of the home equity line of credit, all the funds are available, but are not disbursed immediately. The house-owner is at liberty to withdraw funds against the line of credit according to his requirement. Home equity has both a repayment period and a draw period. Withdrawal of funds must be done in the draw period, and the amount repaid in the repayment period.

 

What are the uses from a home equity line of credit?

An home equity line of credit has a major advantage in that the house-owner can use the withdrawn funds in any manner he pleases. While other kinds of loans like auto loans or mortgages limit the manner on which the disbursed funds may be used and have several restrictions in place, there are not such limitations to the funds received from an home equity line of credit. General purposes where a home equity line of credit can be used are inclusive of the following:

 

·           Home improvements or renovations
·           Capital for small businesses
·           Paying for dream vacations
·           Tuition payments for higher education
·           Funding small businesses

 

In a few cases, interest amount paid on the home equity line of credit can be tax deductible. Such situations include cases where the money was used for home renovation or home improvement. However, all expenses are not tax deductible and house-owners should consult tax professionals before taking any decisions regarding the payments on interest which are deductible.

 

Resources:

Equity line of credit loan credit
http://www.heavens-above.com/finance/investment/equity-line-of-credit-loan.html

 

Mortgage Refinance
http://www.eloan.com