| 1. Closed-End Loans |
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A closed-end
loan, also called a term loan, is a traditional type of loan
where the borrower receives the full loan amount all at
once.
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The homeowner
pays off this lump sum over a set period of time with a
fixed interest rate and fixed monthly payments.
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Once their loan
application has been approved, a borrower may not change the
amount they wish to borrow.
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| 2. Home Equity Lines of
Credit (HELOC) |
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A Home Equity
Line of Credit (HELOC) is similar to a credit card, but
often offers much lower interest rates.
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Homeowners
usually access HELOC funds through lender-issued checks or
credit cards.
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With a HELOC, a
homeowner may borrow any amount, at any time, up to a set
limit.
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Unlike credit
cards, many HELOCs require that homeowners take out an
initial advance, make transactions with a certain frequency,
make withdrawals of a certain amount, or have a minimum
outstanding balance.
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All conditions
will be specified in the loan contract and should be read
carefully.
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Like a credit
card, lenders base the schedule of payments on the
outstanding balance, not on the maximum credit amount.
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