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Rates on Home Equity Credit Lines

HELOC (home equity line of credit) and HEL (home equity loan) are similar in that you use them to borrow money against the equity in your home, but they function differently. A HEL lender gives you a lump sum of money equal to the equity you've built up and requires that you pay it all back at closing. With a HELOC you'll receive a line of credit equal to the equity, rather than a loan. A HELOC is a better option when you don't need a great amount of cash at the moment but are simply looking for a cheaper method of borrowing than a regular bank card.

Secured by the biggest asset, your home, a HELOC generally charges lower interest rates than those on unsecured credit cards. The more favorable interest rate is also possible due to a less risk than that of a HEL because you can't cash out all the money at once.
As HELOC works like a credit card, you incur interest only on the amount that you draw, which is different from HEL where you're charged interest on the whole amount borrowed. When you want to cash out, you can either write a check or use a special plastic card. Suchlike benefits and convenience of HELOC make it a more popular option than a standard home equity loan.
If you urgently need money to pay for college tuition, home improvement expenses or card debts, a home equity line of credit is a fast and fail-safe way to get extra cash. It may also be a good option if you want to refinance your home and pay mortgage at a lower rate. But you are expected to have built a substantial equity to qualify for such a big line.

A savvy borrower will surely look into the terms and conditions of the home equity line agreement to know how interest rates are calculated and applied.
Calculating HELOC Interest Rates
Generally, you have a draw period (5 to 10 years) to borrow and a repayment period (10 to 20 years) to pay back. During the draw period you only pay interest, whereas the repayment period implies you pay on the principle.

HELOC interest rate is calculated on the basis of the daily average balance. So, it depends on how much you draw against the line and repay it. Putting it simple, if say you have a 6% HELOC, the interest per day is 6/365, which is 0, 0164. Then you multiply 0, 0164 by the average daily balance for the current month. You should not compare HELOC APR with a standard loan APR when choosing a cheaper variant. A HELOC APR does not include upfront costs to calculate charges. As to the upfront costs, they are lower than on a standard home equity loan and often don't have a rate adjustment.
Whether you choose a home equity line of credit or a home equity loan online, remember what you risk. You may face a foreclosure on your home once you fail to pay the amount due. So, carefully weigh the pros and cons before you decide on a HELOC.

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