| There are two types of home equity loans: term (such as 15 years) or home equity line of credit (often referred to as HELOC). Both are referred to as second mortgages, because they're secured by your property, just like your original (first) mortgage. In any case, before you secure funding, it's a good idea to compare home equity Vs. HELOC loans. Benefits of Home Equity Loans
Home equity loans can be a great source of funds for a number of reasons: you don't have to change an existing first mortgage, you may gain tax deductible interest, get low interest rates, you don't need mortgage insurance, and you can use the funds for any purpose. A Home Equity Loan is the right choice for things like debt consolidation and single-purpose purchases. These purchases could include: automobiles, medical bills, college tuition, and even extra cash. Benefits of Home Equity Line of CreditHome Equity Line of Credit work more like a credit card. You can borrow up to a certain amount over a time limit set by your lender. You can withdraw money as you need it during that time. As you pay off the principal, your credit revolves and you can use it again. What you get is more flexibility than a fixed-rate home equity loan. A Home Equity Line of Credit will have a variable interest rate that fluctuates over the life of the loan. Your payments will vary depending on the interest rate and how much of the credit you've used. Once the life span of your Home Equity Line of Credit expires you must pay off the remaining balance. Your lender may or may not allow a renewal. You can access your Home Equity Line of Credit by specially issued checks or a credit card issued by the lender. Lenders often require you to take an initial advance when you set up the loan, withdraw a minimum amount each time you dip into it, and keep a minimum amount outstanding.
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