Home Equity Line of Credit vs Home Equity Loan

Which One Is Right For You?

Equity is a powerful tool used by consumers to make repairs and renovations to their home, purchase a second home for investment, pay off debt, pay for school tuition or take a vacation. Equity is the difference in the assessment of a home or a property and any outstanding loans that are held against the home or property. There are two ways of taking out the equity in your home: line of credit or a loan.

The procedure for figuring out the amount of the loan or line of credit your are eligible for is the same for both. The lender will determine the assessed value of the home or property with an appraisal. They will take that sum and multiply it by the current loan-to-value ratio.

ach of these types of lending strategies is very different:

Home Equity Line of Credit:

• Lower interest rate in the beginning of the loan term
• Estimated amount of money needed
• Only the amount used has to be paid back
• Application from start to finish is 30 days
• Closing costs involved
• Borrowers write checks against the credit line
• Credit reviews occur from one to three years to keep the line open
• Fees for maintenance and non-use of credit line

Home Equity Loan:
• You need to have a specified amount of money
• No fluctuation interest payments
• Application time is not more than 30 days
• Closing costs involved

Most lenders will advise borrowers to choose the loan over the line of credit. It is static and predictable over the term of the loan. You should research the fees, costs and interests of various bank loans to get the most out of your equity.