Home Equity Loan vs Home Equity Line of Credit

[Homerboy]

We're looking to do some home improvemnts and/or pay off some higher interest loans.

I've gotten some rough numbers and figures from a bank at this poiint but Im debating still between a line of credit or a straight loan....

any input on either or ? Any suggestions from personal experience/knowledge?


Thanks in advance.

 

[kranky]

A home equity line of credit (HELOC) is essentially like a credit card - when you use the line of credit, you start making payments. Usually has a variable interest rate.

A home equity loan (HEL) is like a second mortgage. It can be fixed rate or variable, but has a defined term and a defined monthly payment.

For your situation I'd go with a fixed interest HEL.

 

[crobusa]

If you don't plan to use all of the money, some experts perfer the HELOC.
1. It's a great source for emergency cash.
2. It's an lien that you can cancel anytime. (Identity thieves take out morgages in other people's name)
3. The loan amount can increase/decrease.

Since you're using the entire amount, a HEL sounds better.. Fatwallet has a very good finance forum which talks about these in detail.

 

[geecee]

HELOC is more flexible as in you can always borrow up to the total line of your HELOC at any time. But most HELOCS are adjustable based on the PRIME rate (currently 7.25%). That rate, at best, will stay flat and will probably increase. If you know exactly how much you need and don't anticipate needing anymore in the near future and can get a low fixed rate HE loan, then you should do that. If you need the flexibility and don't mind paying a little extra interest for it, go with the HELOC. I'm not 100% sure what the tax differences between the two are, if any, but generally, interest up to 100K is deductible.