Do You Need a Home Equity Loan or a Line of Credit?
Monday, November 10th, 2008Your home is worth a lot. You can tell the home equity folks know this by the numerous ads aggressively promoting home equity loans and home equity lines of credit. They suggest you put your home asset to work. But is it a good idea for you? And, if so, which should you choose?
The advertisements are seductive, but remember “all that glitters is not gold.” Both loan options use your home as collateral for a loan. There’s nothing basically wrong with this idea other than the fact that you may be greatly risking your most valuable asset.
Essentially, getting a home equity loan is the same as a second mortgage - a lump sum advance on the money you've already paid in. You borrow a specific amount for a certain period of time and pay back the balance with interest in installments.
A home equity line of credit, on the other hand, is a lot like a having another credit card. The lender agrees to lend a specific amount of money over an agreed period of time and the borrower can draw against this line of credit whenever they want.
