Home equity Loan vs. a Home Equity Line Of Credit
When you want to use the equity that you have built up in your home to get a loan, you can choose a home equity loan. While both a home equity loan and a home equity line of credit allow you to borrow based on the difference in the outstanding balance of your mortgage and the value of your home, there are differences between them that you have to look at before you make your decision.
A home equity loan carries low interest and regular monthly payments. Depending on your credit record and the lender that you choose, you may be able to borrow as much as 125% of the amount of equity. There are no restrictions on how you use this money. You receive a lump sum payment once all the paperwork is finished. The thing that you have to look at with a home equity loan is that it is a one-time thing. You can choose a fixed rate of interest or a variable rate and you do have a term in which you have to repay the loan. Once you pay off the loan, you cannot go back to the lender and apply for a second home equity loan.
A home equity line of credit gives you access to a source of funding that you can use and reuse as you please. The lender agrees to approve an amount of money and you use it like a checking account from which you can draw funds. You can take out all of the money at once or only part of it. The payment you make each month is a percentage of the outstanding balance and the interest is also computed each month based on the amount of the balance. With this line of credit, you can use the money and repay it and then use it again when you need it.
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