First of all, both home equity loans and home equity lines of credit are considered second mortgages because they are both secured by the property, just like the property was used to secure the original or first mortgage.
When you get a home equity loan, you usually receive a lump sum of money, and it is to be paid back over a set period of time, at a fixed rate, with the same amount to be paid each month. Once you get the money on a home equity loan, you cannot borrow any further from the loan.
On the other hand, a HELOC is more like a credit card since it normally has a revolving balance, which will allow you to borrow different amounts up to a certain amount during the life of the loan. The life of the loan is whatever time period your lender has set up, and you may withdraw the money as needed during the period that has been set up.
For example, when you have a $12,000 line of credit set up by your lender as a HELOC, you may use any or all of that amount. If you use $5,000, that means that you have another $7,000 that you can still use for whatever reason. If you pay back $3,000 instead of taking out more money, you will actually have $10,000 available, with $2,000 that you still have to repay.
A HELOC is also different from a regular home equity loan in that it has a variable interest rate that can fluctuate over the life of the loan. This means that your monthly payment will fluctuate according to current interest rates, and also in accordance with the amount owed, and whether it is the draw or repayment period for the credit line.
During the draw period, you can borrow against your line of credit, and you will only cover interest if you make minimum payments. However, you can always choose to repay any or all of the principal. When you are in the repayment period, you cannot add to your debt, and you have to repay the balance over however amount of time you have left on the loan.
You should know that the above information is very generalized, and that HELOCs can vary from lender to lender. If you need to have more specific information about draw periods and repayment periods, you should consult your mortgage holder, or any other lender.
In fact, it is always a good idea to shop around for any type of loan to see who has the best rates available. The lower the interest rates that you can secure for your loan, the lower your payments are going to be, and the less you will have to pay to borrow the money.
You will have to make the decision whether a HELOC or a regular home equity loan better fits your current needs. In addition, always keep in mind that you will have to cancel either the HELOC or the home equity loan when the time comes to sell your home.
Notice: In accordance with FTC guidelines, we state that RealEstateProArticles.com has financial relationships with some companies and may be compensated if consumers choose to buy, subscribe or take any action to a product or service via the links on our website. Occasionally, we receive free access to review a product or service. We do not accept compensation in exchange for a positive review. These reviews are strictly the opinions of the author.
![[Valid RSS feed]](http://www.realestateproarticles.com/images/icon_Rss.png "XML Feed For RSS"){kind=icon}
Category Rss Feed
Print This Article
Add To Favorites