home equity

How do I ... Choose a home equity loan or a HELOC?

By Rose Raymond • Bankrate.com

Topic: Home Equity

Who is affected: Homeownership

DEGREE OF DIFFICULTY: Easy

What you'll need: Thinking cap

What you need to know

If you've invested in a home and watched your equity build over the years, you can tap that equity for a new car, home improvements, college tuition or other expenses.

There are two main options for such borrowing: the home equity loan and the home equity line of credit, or HELOC.

Which is best for you?

The general rule of thumb is that if you need the money all at once, it's better to take out a home equity loan. But if you'll be spending the money in installments, such as for your child's college education, you're better off with a HELOC.

A home equity loan is delivered in a lump sum. A HELOC, on the other hand, is doled out in installments.

Step-by-step

If you're still on the fence between an equity loan and a HELOC, our calculator can help you determine which is best for your specific needs.

One major benefit -- or drawback, depending on how you look at it -- of the HELOC is that you have the option of only paying the loan's interest for several years. Of course, the killer price to pay for this can be an expensive balloon payment due at the end of the loan's term.

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Posted: Aug. 3, 2009