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What's better: line of credit or equity loan?

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  • What's better: line of credit or equity loan?

    I want to completely rebuild my kitchen.

    Bank is offering to finance it through either 1) line of credit or 2) home equity loan

    I have no idea which is better is better for the consumer (more favorable terms).

    When I asked the banker she started to dance around the issue.

    Anybody has experience with this?

    "Artillery adds dignity to what would otherwise be a ugly brawl."
    --Frederick II, King of Prussia

  • #2
    If your banker is being obscure find another banker, she is either trying to flim flam you or is genuinely incompetent. Either way a liability.
    AFAIK Home Equity = mortgage or line of credit = credit card describe the security the borrower gives. A secured loan usually (but not always) is safer for the banker so less risk should (Should) bear lower finance costs (but might bring her lower commission) but as with everything you need to look at the fine print and if she is unwilling to explain this I would be suspicious.
    Human history becomes more and more a race between education and catastrophe (H G Wells)
    Mit der Dummheit kaempfen Goetter selbst vergebens (Friedrich von Schiller)

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    • #3
      Originally posted by MarkV View Post
      If your banker is being obscure find another banker, she is either trying to flim flam you or is genuinely incompetent. Either way a liability.
      AFAIK Home Equity = mortgage or line of credit = credit card describe the security the borrower gives. A secured loan usually (but not always) is safer for the banker so less risk should (Should) bear lower finance costs (but might bring her lower commission) but as with everything you need to look at the fine print and if she is unwilling to explain this I would be suspicious.
      She did explain it sent me an email but because both products look very similar, I can't decide what to do.

      "Artillery adds dignity to what would otherwise be a ugly brawl."
      --Frederick II, King of Prussia

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      • #4
        A bout of plague I think... But, the home equity loan is better. Taking it means you can write off the interest as you would a mortgage so you get a tax break. You will also generally get a better and fixed interest rate on one.
        The other thing with a line of credit is it stays open until you close the account rather than until you pay it off.

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        • #5
          Or, just save your money, then charge it to get the points/miles and pay it off that month.

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          • #6
            Originally posted by johns624 View Post
            Or, just save your money, then charge it to get the points/miles and pay it off that month.
            A decent complete kitchen remodel will run $20,000 and up easily. Of course, you could get cabinets made of sawdust with pictures of wood glued on them, countertops that look like granite but are made of plastic, and cheap appliances and do it for maybe $10,000, or do it yourself that way for as little as maybe 5...

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            • #7
              Originally posted by MonsterZero View Post
              She did explain it sent me an email but because both products look very similar, I can't decide what to do.
              I am assuming that you are talking about:

              Home Equity Loan vs Home Equity Line of Credit (HELOC)

              Both are secured by the equity of your home and both also uses your home equity to determine the amount the bank will give you. Tax wise, both fall into the second mortgage scenario.

              An equity loan is paid out to you in one lump sum - which is referred to as "closed end". A line of credit allows you to take money out in chunks as you need it over what is called a "draw period" - you choose when and how much to borrow against the pre-approved limit.

              The draw period for a HELOC ranges from 5-30 years and you can keep drawing against the limit during that period. A HELOC allows you to make minimum payments as little as interest-only during the entire draw period, however everything is due at the end of the draw period. A bare minimum is a clause for a huge balloon payment and then to pay off the HELOC by applying for another HELOC.

              For people with poor planning and saving skills, the equity loan is a better choice because it actually forces you to make payment against the principle and not have to go through the harsh reality that you got nothing saved up and you may not be able to refinance if house value does not go up and having to forfeit your home after paying years of interest for nothing. Oh and it is usually APR, not fixed.

              HELOC is most famous for being associated with what was to be known as the predatory subprime mortgage crisis back in 2008.
              Last edited by Salinator; 29 Jun 16, 22:49.
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              • #8
                Originally posted by T. A. Gardner View Post
                A decent complete kitchen remodel will run $20,000 and up easily. Of course, you could get cabinets made of sawdust with pictures of wood glued on them, countertops that look like granite but are made of plastic, and cheap appliances and do it for maybe $10,000, or do it yourself that way for as little as maybe 5...
                I know that. We redid ours a few years ago. We even got quartz counters instead of granite. My point is that a kitchen doesn't have to be done now. If your car engine dies or your furnace quits, they have to replaced now, so you might have to borrow money. Something that is optional, you save up until you have the cash to do it.

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                • #9
                  Originally posted by johns624 View Post
                  I know that. We redid ours a few years ago. We even got quartz counters instead of granite. My point is that a kitchen doesn't have to be done now. If your car engine dies or your furnace quits, they have to replaced now, so you might have to borrow money. Something that is optional, you save up until you have the cash to do it.
                  When I moved into a house in rural Hertfordshire way back in the early 80s the kitchen was grotty. If I wanted to stay married a new kitchen was vital - I built it myself and although shouldn't blow my own trumpet did a better job than I'd have got by buying one and saved thousands
                  Human history becomes more and more a race between education and catastrophe (H G Wells)
                  Mit der Dummheit kaempfen Goetter selbst vergebens (Friedrich von Schiller)

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                  • #10
                    Originally posted by MonsterZero View Post
                    I want to completely rebuild my kitchen.
                    Originally posted by MarkV View Post
                    When I moved into a house in rural Hertfordshire way back in the early 80s the kitchen was grotty. If I wanted to stay married a new kitchen was vital - I built it myself and although shouldn't blow my own trumpet did a better job than I'd have got by buying one and saved thousands
                    My response focused on the red part. I knew he wasn't married so there weren't any other dynamics going on there.

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