Home Equity Loans:

A Home Equity Loan is secured by a first or second mortgage on the borrower's principal residence. It is generally used for debt consolidation, home improvement, and car purchases. However, it can be used for a wider variety of purposes. American HELOC has expanded this traditional view with lower cost home equity loans that are easier to qualify for and can be used for a wider variety of purposes. Home Equity Loans have several advantages such as comparatively low interest rates and payments, and larger loan amounts up to $650,000. A Home Equity Line of Credit (HELOC) provides a revolving line of credit like a credit card, however unlike credit cards, car loans, and student loans, your interest is not compounded. Any reduction in the principal pays the loan down much faster than a compound interest loan.

back to top

Home Equity Line of Credit:

A HELOC is a revolving line of credit with the following features:
1.	The borrower has a fixed credit line.
2.	The borrower can take out (draw) the full amount or partial amounts over a period of time (draw period) depending on th borrowers needs.
3.	A HELOC is a simple interest loan, which means that interest is not compounded.With a simple interest loan, any principal reduction pays the loan down much faster than a compound interest loan. (Most loans, such as credit cards, car loans, personal loans, and student loans, are computed with compound interest.)
4.	The borrower is only required to make interest payments during the draw period.

"A HELOC gives you added flexibility and control over the amount of money you want to borrow, by giving you a choice of either drawing the full amount of the credit line, or using the funds only as needed."

back to top

Fixed Rate Second Mortgage:

A Fixed Rate Second Mortgage is a loan for a fixed amount of money with the following features:
1.	A Fixed Rate Second Mortgage is an amortized loan.
2.	It requires the borrower to take the full amount of the loan at closing and begin making payments on principal and interest immediately.

back to top

Comparison of the Loans:

Feature		HELOC	Fixed
Lien Position Interest Credit Line		First or Second Simple Revolving	Second Amortized Fixed
Draw Period		Up to 10 years, depending on the contract.	N/A
Minimum Payments		During the draw period minimum payments are applied to interest only	Since Fixed Rate Seconds are amortized, payments go towards principal and interest, with the larger share of the payment going toward interest

back to top