Families Have Limited or Restricted Access to Home Equity Loans or Home Equity Line of Credit

The recession and mortgage crisis have created some bad situations for homeowners. For a long time, owning a home was seen as a way of creating wealth over time. The recent bust in the housing industry has caused many families to go without or to lose their nest eggs. No longer are they able to take cash out to meet their needs.

A HELOC is a good choice to meet ongoing cash needs, such as college tuition payments or medical bills. A HEL is more suitable when you need money for a specific, one-time purpose, such as buying a car or a major renovation.

Comparing the costs
Both HELOCs and HELs usually carry a higher interest rate than that of a first mortgage. With a HEL, you may choose either an adjustable rate that fluctuates according to variations in the prime rate, or you may opt for a fixed rate. A fixed rate enables you to budget a set payment monthly without worrying about increasing costs should interest rates rise. With a HEL, there are also closing costs that you should consider.

A HELOC usually carries a lower initial interest rate than a HEL, but its rate fluctuates according to the prime rate, so there is more interest rate risk. Unlike a HEL, where your monthly payments are a set amount, a HELOC enables you to borrow funds as needed and repay as little as interest only each month. In addition, there are generally no closing costs when you open a HELOC.