Debt Be Gone Today

The home equity line of credit (HELOC) and the traditional home equity loan are two entirely different things. Their difference can save you thousands of dollars and even slash 13 years from your mortgage.

In essence, the traditional credit card and an American Express credit card are seen to be almost the same ” they ARE credit cards. How exactly are they different from each other?

What you do not know is that there is a significant difference.

Traditional credit cards, such as a Visa or Master Card, have higher interest rates and creditors are only allowed to pay their monthly minimum balance. The American Express card conversely allows creditors to fully pay off their balances at the end of each month so that they will not be charged for outstanding balances and interest.

The American Express card will cater to your purchasing needs for 30 days but you need to pay off your balance as soon as it is due.

So while they appear to have the same purpose, all credit cards are not necessarily governed by the same rules. Not being able to plan your cash flow and not paying your American Express card credits can cause you much trouble.

The same applies to any HELOC and a home equity loan. Not knowing the difference could cost you thousands of dollars in extra interest payments. And one of them could help you slash at least 13 years off your mortgage if you would know how to use it.

So let us get started.

HELOC interest rates are variable. This line of credit can be secured through your home and you can consider this as your second mortgage.

HELOC interest rates adjust to the prime interest rate. When the prime interest rate rises, your HELOC interest rate would rise with it.

And if the prime rate falls your HELOC interest-rate will fall as well. In some cases you can get a lower interest rate on your HELOC at a few points below prime rate depending on your financial situation.

Your outstanding HELOC balance will serve as basis for calculating your HELOC mortgage interest rate. So your interest rate will be computed per day if you make multiple remittances within the month. The result of the computation will be the interest rate that will be applied to your mortgage account.

This is called the variable method of calculating interest. The reason is that if your balance increases or decreases, the interest you pay is variable or changes daily.

This is the advantage of calculating interest using the variable method.

When you make use of the HELOC mortgage, you can pay your HELOC and borrow money from it any time. You only have to make sure that you will not go over you HELOC limit so you can go on using it to borrow money.

It is true that HELOC is almost the same as the traditional home equity loan. There, however, are two main points that distinguishes one from the other.

One, home equity loan accounts are fixed. It operates on a specific period, there are fixed interest rates, and the amount that you will be paying per month will be the same. Even if your prime interest goes down, the rate that you will be paying will not change. This can be considered as a 30-year fixed loan plan.

Two, you can only borrow funds from your equity loan if you have adequate equity in you home and if you have refinanced your home equity loan. This only means that you cannot just borrow money from it any time.

The perfect time to use the traditional home equity loan is when you require lump sum payments up front and you plan to make small payments every single month. You can pay back both interest and pay extra towards principal.

The terms for the traditional home equity loan are fixed. So, you will be paying the same interest rate, the amount you borrow will remain unchanged, and your home equity loan payment term is permanent. This means you have to make your payments on time throughout the duration of your loan.

The HELOC loan is variable. The interest rate as well as the amount you borrow can change over the repayment term of the loan.

Each has its own significant advantages and disadvantages.

HELOCs one important advantage that many people have failed to learn is that it can be used as a mortgage checking account.

This means you can actually consider your HELOC as something that is similar to your regular checking account. You can use it to pay your bills and do online transactions every month as long as you deposit your paycheck into it.

And heres one more thing that other people do not tell you.

Your HELOC used as a checking account would get you savings worth thousands of dollars and would can help you slash 13 years off your mortgage balance and achieve a mortgage reduction strategy faster.

In fact, you will be able to get $63,000 worth of savings without spending more or changing your financial lifestyle.

Because interest rates will vary and you will be able to withdraw and deposit money anytime, the HELOC is certainly one effective strategy that you can use in order to pay off your mortgage early and achieving a mortgage reduction strategy faster.