Home Equity Loan vs Home Equity Line of Credit
A home equity loan is a loan that is taken out against the value of your home or one in which you use the equity in your home as collateral. If you repay the loan, the lender will release the mortgage. If you cannot repay the loan, the lender can foreclose on your home. It is common that homeowners are limited to only borrowing 80 percent of the equity in their homes but this can change depending on your credit rating, the current value of your home, or your income. The two main types of home equity loans are home equity line of credit versus home equity loan. The home equity loan is often referred to as a second mortgage, or a closed-end home equity loan.
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The main difference between a line of credit vs home equity loan is the way you are able to access the line of credit. A home equity line of credit (HELOC) has an open-ended line of credit or a revolving line of credit similar to a credit card. You can borrow any amount whenever you need to as long as that amount does not go over your credit limit. Also, you only have to pay on the amount you borrowed, not on the whole amount available. This loan is practical for dealing with unexpected expenses and is typically tax deductible.
The difference between a heloc vs home equity loan is the loan is usually for a fixed amount and for a set amount of time. These are similar to first mortgages and are practical for putting towards home improvement expenses, college tuition financing, or to pay off other debts.
In either case it is important to remember that you are borrowing against the equity of your home. With your home as collateral you risk foreclosure if you cannot repay the loan, meet it’s requirements or find other means of refinancing. With interest rates at historic lows and with the opportunity of using interest as a deductible, HELOC loans and second mortgage loans have become more popular than ever.
Now is a good time for refinancing but make sure you check all your available resources so you can choose the best mortgage loan for you.
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