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Home Equity Loan Versus a Home Equity Line of Credit

Posted by  on Apr 16, 2009
 
You might be considering using some of the equity in your home to finance a home improvement project, pay off student loans, make necessary repairs, help finance a large health expense or to pay off other higher interest expenses like car loans and credit card balances. Whatever the reason, aside from refinancing your existing mortgage, a home equity line or loan might be right for you.

The difference between the two options are stark - the Home Equity Loan is a closed end second mortgage on your property that acts very much like your first mortgage, with regular fixed payments and a clearly defined payment history which will end at a certain point - typically 5, 10, 12 or 15 years.

A Home Equity Line of Credit (HELOC) is much more like a credit card with a maximum cap against which you can borrow but with the one difference is the interest you pay will be tax dedcutible. Any any amount of principle you pay back, can be once again, borrowed at anytime. One benefit of a HELOC is the ability to be flexible to borrow the money at anytime to keep your interest payments lower as you only pay for the money you take out. Also you would have the ability to take out more money at a later date in case of unforseen expenses down the road. Major home improvement/renovation projects are one viable example when a HELOC might be the wiser program to utilize.

Home Equity Loans give you stability in monthly payments and typically do not have any upkeep fees associated just upfront costs as you might find with any first mortgage. With either program you might select a Home Equity product might just be able to help you get equity from your home and potentially save you thousands of dollars in uncessary expenses over a very short period of time. As is the case with any financial decision, a little bit of homework and research will certainly go quite a long way in determing which scenario might be best for your particular situation.

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