Which Loan is Best For You-A Home Equity Loan or a Home Equity Line of Credit?

If you don’t know the difference between a home equity loan and a home equity line of credit, here’s a quick summary of both with their advantages and disadvantages.A home equity loan is a fixed loan taken out over a fixed period of time and at a fixed rate. The monthly repayments are also fixed for the term of the loan so you know from month to month what you’re paying back.The advantages of this loan are…o That unlike your primary mortgage this loan is paid off over a shorter period of time, it varies between 5 – 30 years.o You can’t borrow more than the amount you have agreed so you can’t get further in debt.The disadvantages of this loan are…o You may get carried away and may borrow a little more than you really need to.o You can remain in debt by taking out an interest only home equity loan and not paying off the principal amount.A home equity line of credit can be compared to a credit card; the lender offers you a fixed amount you can borrow up to in a certain time limit. These time limits can vary
from lender to lender. You get a fixed period of time you can borrow for and then a fixed period you to pay off your loan.The advantages of this loan are…o You don’t ever need to borrow the full amount offered.o You can pay off the full amount and if you are still within the borrowing time limit, you can borrow the same amount out again.o It’s more flexible than a home equity loan.The disadvantages of this loan are…o You are never on a fixed interest rate, your repayments vary from month to month.o Some lenders require a small up front payment before using the loano You may only be able to borrow a minimum amount each time and have a minimum remain balance.And finally, as with all loans, always be on the lookout for the best deals and make sure you can afford it before taking either loan out.