Equity Loan vs. Credit Line

Do you know the difference between home equity loans and home equity lines of credit (HELOC)? A home equity loan is a second mortgage. It allows borrowers to use the available equity in their homes to put extra cash in their pockets. A HELOC is a line of credit that allows borrowers to draw money as they need it. HELOCs work like credit cards, allowing borrowers to spend money from an available line of credit. In most cases, HELOCs offer lower interest rates and the interest paid may be tax deductible. (Please consult a tax advisor.)

If you’re thinking of using your available home equity it’s important to ask yourself a few simple questions. Will you need to access money periodically for a long-term project? Do you know how much money you’ll need? If you need money for a long term project, a HELOC gives you money when you need it, and you pay interest only on the outstanding balance.

If you know the amount of money you need to borrow for a specific purchase then a home equity loan may be a better choice. A home equity loan allows qualified borrowers to borrow cash using home equity as collateral to guarantee the loan will be paid.