Credit gives the word to pay either by repaying it or returning those resources later. In other words, this credit is the method of making the reciprocity formal, legally enforceable, and of course, extensible to a vast group of people who are not related.
However, the resources provided may be financial or have goods or services, like consumer credit. The credit covers any form of deferred payment. Credit generally gets extended by the creditor, the debtor or lender, and sometimes the borrower.
This is where home equity loans and home equity lines of credit come in. Say you've run into certain financial difficulty, e.g., due to the COVID situation or otherwise, and you need to borrow money. This could be to pay off another debt, keep a business running, or renovate a part of your house.Generally, you may be able to borrow up to 85 per cent of your home equity or up to Rs. 17 lakhs. So, you borrow a lump sum amount of money with a fixed interest rate and a fixed monthly payment for a certain number of years – e.g., 5 to 30 years. This is called the Home Equity Loan. It is a second loan after the loan for buying the flat that you had taken in the first place.
Something related but different is the Home Equity Line of Credit. This is also a loan that you take against the equity of your house, generally up to 85 per cent of your home equity (or 17 lakhs in our example), but you don't borrow all the money in one go. From your 17 lakhs loan approved by the bank, you borrow different amounts of money as needed at variable rates. You need to look for banks providing the lowest interest rates or fees for Home Equity Loan or Home Equity Line of Credit before deciding on one. Approving these is risky for the bank because the bank will lose money if you cannot pay back the loan or if the home value drops. If you were to default on a loan, the first loan for buying the house, i.e., the remaining 15 lakhs and any interest, needs to be paid first before the bank recovers the money lent for a home equity loan or line of credit.
