Equity Lines of Credit
– An equity line of credit has set and predetermined dollar amounts, terms and rate structures, and usually adjustable rates. The available funds can be borrowed via check or sometimes a credit card and then repaid in full or with monthly installments. Equity Lines of credit are secured against real property and the funds borrowed are against the equity in one’s home, hence “equity lines of credit”.
If a balance does not exist then (similar to the use of a credit card) payments are not required and interest is not charged, although some may have an annual fee for servicing. They are usually for a 15 or 25 year period.
Similar to a second mortgage, Equity Lines of Credit can also be used in conjunction with a first mortgage during a purchase transaction to avoid the need for mortgage insurance at higher loan to values. Any requested funds are disbursed at the close of escrow and then are paid back on the predetermined terms.
“Refinancing a loan” is the process of taking a loan (or loans) to pay off an existing loan that is secured by the same property and typically by the same borrower’s.
There are basically two types of refinance products:
• Rate and Term
• Cash Out
Rate and Term – This type of refinance is one in which the objective is to change the interest rate (generally lower) and the term (often extending it). This is done in order to obtain a lower and more manageable monthly payment.
Cash Out – This type of refinance is one in which a larger loan is taken out to pay off a smaller one, with the difference, also known as the equity, going to the homeowner in the form of cash.