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payment home equity loan

A home equity line of credit, or HELOC, works more like a credit card because it has a revolving balance. A HELOC allows you to borrow up to a certain amount for the life of the loan  A time limit set by the lender. During that time, you can withdraw money as you need it. As you pay off the principal, you can use the credit again.


Collateral is property that you pledge as a guarantee that you will repay a debt. If you don't repay the debt, the lender can take your collateral and sell it to get its money back. With a home equity loan or line of credit, you pledge your home as collateral. You can lose the home and be forced to move out if you don't repay the debt.
As home prices fell and homes in your neighborhood went into foreclosure, your home's value dropped by 30% (or $54,000) to $126,000. Because the value of your home is less than the amount you owe, you have $41,000 in negative equity and would not be eligible for a home equity loan.

A home equity loan is a one-time lump sum that is paid off over a set amount of time, with a fixed-interest rate and the same payments each month. Once you get the money, you cannot borrow further from the loan.
Let's say you have a $10,000 line of credit. You borrow $5,000 to pay for new kitchen cabinets. At that point, you owe the $5,000 you borrowed, and you have $5,000 remaining in your credit line, meaning that you could borrow another $5,000.

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A line of credit has a variable-interest rate that fluctuates over the life of the loan. Payments vary depending on the interest rate, the amount owed and whether the credit line is in the draw period or the repayment period.

Equity is the difference between how much the home is worth and how much you owe on the 
mortgage (or mortgages, if you have a home equity loan or line of credit).
Home equity loans and lines of credit usually are repaid in a shorter period than first mortgages. Most commonly, mortgages are set up to be repaid over 30 years. Equity loans and lines of credit often have a repayment period of 15 years, although it might be as short as 5 and as long as 30 years.

A home equity loan (or line of credit) is a second mortgage that lets you turn equity into cash, allowing you to spend it on home improvements, debt consolidation, college education or other expenses.
Bankrate.com is an independent, advertising-supported publisher and comparison service. Bankrate is compensated in exchange for featured placement of sponsored products and services, or your clicking on links posted on this website. This compensation may impact how, where and in what order products appear. Bankrate.com does not include all companies or all available products.

The draw period often is 5 or 10 years, and the repayment period typically is 10 or 15 years. Those are generalizations; each lender can set its own draw and repayment periods. Lenders have been known to have draw periods of 9 years, 6 months, and repayment periods of 20 years.

A HELOC gives you more flexibility than a fixed-rate home equity loan. It also is possible to remain in debt with a home equity loan, paying only interest and not paying down principal.
In the housing meltdown that began in 2006, many homes lost equity rather than gained it. Instead of increasing, the value of the house dropped after the home was purchased. In many instances, a home equity loan would not be available.

Using the above example, let's say you buy a house for $200,000. You make a down payment of $20,000 and borrow $180,000. During the next 5 years, you paid down $13,000 of your mortgage debt.
Instead of borrowing more from the line of credit, you pay back $3,000. At this point, you still owe $2,000, and you have $8,000 in available credit.

During the equity line's draw period, you can borrow against it and the minimum monthly payments cover only the interest, although you can elect to pay principal.
This loan repayment calculator helps determine the loan or line payment. For a loan payment, select fixed-term loan. For a line of credit payment, choose 2 percent, 1.5 percent, 1 percent of the outstanding balance or interest only.

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