Mortgage: Home Equity Loan or Line of Credit in Tight Markets

A home equity loan is not a phrase you hear much of nowadays due to not a lot of folks or areas in the country are gaining in equity. It is important to understand exactly what the term “home equity” actually means.

As an example, you own a house and it is worth $ 150,000 from a professional appraiser report or the local realtor ran some comparable property sales for you. The debt owed on the property is just $ 50,000. As a result, the equity you have in your home is $ 100,000; the difference between the principal mortgage balance owed and the current value of the property. So you know you have equity and now want a equity loan.

What is better, a Home Equity Line of Credit or a Home Equity Loan?
The attractive part about Home Equity Loans compared to a home equity line of credit is that it can be used for tax write-offs, features below market interest rates and longer loan repayment periods. Therefore, home equity loans have some benefits right from the get-go.

It is important to understand that it is a second mortgage or lien on your property. Similar to your first mortgage loan, when you accept a equity loan you will normally have terms that give you a fixed interest rate, and a repayment period ranging from 10 to 20 years. A Equity line of credit is different in that the interest rate may vary over time and depending when you choose to use the proceeds from the credit line, the terms will begin. The choice is a difficult one when choosing a “Line of Credit” or “Home Equity Loan” due to your individual needs at that time.

In general, people pick a fixed rate home equity loan for costs and fees that are not recurring like a home improvement job on the home and a Equity line of credit is best used for recurring expenses.