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Home Equity Loans vs. Home Equity Lines of Credit
By JJ Singh
California Mortgage Rate Columnist
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You're looking to get a home equity loan or a line of credit but you can't decide which. The first thing you should ask yourself is this: when do you want the money?
The Home Equity Timeline
If you'd like to make one large, lump sum draw on your home's equity, you should probably go with a home equity loan. Many people use home equity loans to pay for weddings, car purchases, or even home remodeling.
On the other hand, if you'd like to use your equity over time, you might consider a home equity line of credit (HELOC). Choose a HELOC to pay off high-interest credit card debt, medical expenses, or just to have available for a rainy day.
Home Equity Loan Rates
Not only do the two loan types differ in the ways in which you can draw money, but also in the ways that you pay the loan back and the rate you're charged. Home equity loans typically have both a fixed-interest rate and steady monthly payment. Your payments include a blend of both principle and interest.
Lines of credit have adjustable interest rates that vary according to market interest rates. For the first few years, you would pay only interest until the drawing down period closes (typically 5 to 10 years). Afterward, your payment would mirror that of a traditional home equity loan.
Whichever loan type you choose, the first step is to assess when you'll need the money and how often. Afterward, consider how the loan rate might affect your decision.
Sources:
www.bankrate.com
About the Author
JJ Singh is a returned Peace Corps Volunteer, formerly stationed in Bolivia. Previously, he has worked as a consultant for an international development bank and as an interpreter and docent at a historic site in Virginia. JJ has a degree in economics from the University of Virginia and studied part-time at the University of Valencia in Spain.
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