A Comparison between Home Equity Line of Credit and Home Equity Loan
A home equity line of credit, also known as a HELOC, is a line of credit that revolves and provides you funds as per need. As in the case of a home equity loan, your own residence is used as collateral to avail this kind of loan. The difference is that unlike the huge sums you draw and pay back in the case of home equity loans, you only have to pay what you take out in the case of a HELOC. Usually, lenders set a maximum amount you can draw, and a draw period which is the amount of time within which you can take money.
A huge upper hand of the home equity line of credit over home equity loan is that the closing costs involved are lower for the former. Note that other fees may be added to the interest to make up for this deficit. Home equity loans usually have a fixed rate of interest, but credit based financing may also be a viable option for certain individuals.. HELOCs, on the other hand, have variable rates. Note that the interest rates in home equity loans are generally higher than those of HELOCs. This is due to the security of the fixed interest rate which they provide. This feature may benefit you, especially when the rates involved are low. Besides, it is also possible to change your HELOC into a fixed rate.