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Seven Home Equity Tips, Part 3: Learn About Home Equity Loans and HELOCs

This article was written by in Debt Reduction. 4 comments.

If you’re going to borrow against your home equity, you might want to understand the different options are available. David Bach in a recent column outlined the differences between home equity loans and lines of credit.

Home Equity Loans. Generally called a second mortgage, this type of loan allows you to borrow a set amount that you receive in a lump sum up front. You pay it back over a specified period (typically 10 or 15 years) in monthly repayments. The interest rate is usually higher than a first mortgage but lower than most credit cards, and fixed for the life of the loan.

HELOC. This stands for “home equity line of credit,” and generally works like a credit card. Your lender assigns you a maximum amount up to which you can borrow. You can use only what you need if and when you need it, up to the limit. Interest is typically variable, but usually lower than credit cards because the credit is secured by your home.

There are slight but important differences between the two types of products, and different lenders will throw in additional twists and turns.

Seven Ways to Be Home Equity Savvy [David Bach]

Updated September 28, 2007 and originally published August 16, 2007. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 2 comments… read them below or add one }

avatar Lazy Man and Money

It may be worth mentioning that interest on these can be tax deductable. That can make it a good source of funds in a short term emergency.

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avatar David Mackey

Thanks for the recommendations. I am currently looking at home equity loans.

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