Although several options are available,
the most common choice for a home equity loan is between
a home equity line of credit, commonly called a HELOC,
and a home
equity loan.
The loan you go with depends on how financially disciplined
you are and whether you need a set amount of funds
in one lump sum (home equity loan) or a flexible amount
over time (HELOC). Katie Porter, an associate professor
of law at the University of Iowa and mortgage bankruptcy
researcher, points out that while it may be easier
to stick to and budget for a set amount using a home
equity loan, "for most people, money left sitting
in the bank tends to get spent. On the other hand,
if you're going to need multiple infusions of cash,
the fees from taking multiple home equity loans will
add up and you might be better off with a line of
credit."
Here's a quick list highlighting the differences between a home equity line of credit and a home equity loan to guide your decision.
 |
| HELOC vs. home equity loan
|
|
| Money is dispersed as needed, may have mandatory dispersal to open |
Take money in one lump sum |
| Generally, no closing
costs |
Often carry closing costs |
| Interest rate is usually variable, subject to ups and downs of rates |
Interest rate is generally fixed for life of loan |
| Generally, interest paid is tax deductible |
Generally, interest paid is tax deductible |
|
