If the term of the loan exceeds 10 years, then the adjustable rate applies, he explains. As with a mortgage, closing costs are involved but, Simon says, they're minimal. The other option banks advertise is the home-equity line of credit, which functions like a personal checking account and credit card, Simon explains. The bank charges interest only on the funds borrowed, not the entire line. Simon says lines of credit are frequently extended over a 10-year period and customers use them for a number of purposes.
Banks usually offer lower, long-term interest rates.
They charge in the neighborhood of 7 percent compared to the 17 percent average for credit cards, he says, and notes this is the time of year potential borrowers plan vacations, weddings and home improvements. In addition, Simon reports, customers use home-equity lines of credit to finance new automobiles, boats, motor homes, trailers and college tuition. Tino Merlow, business manager at Toyota Volvo Jaguar, Warren, Ohio, has seen a very small number of customers choose to finance automobiles through home-equity loans. Whether they are using lines of credit is harder to determine, he adds, because the customer is writing a check against an account. Bank One's Cotiaux says debt consolidation is the most popular reason individuals take out home-equity loans.