Getting a Home Equity Loan vs. Line of Credit
For many people, the equity they have built up in their home can be a life saver when it comes to finding the money to pay off high interest credit cards or other unexpected expenses. But there is some debate as to whether it is better to take out a home equity loan or a line of credit based on your home's equity.
As with any financial solution, there are pros and cons with both options. That is why we have tried to bring you all of the most up to date information so that you can make an informed decision when choosing between a home equity loan and a line of credit.
What Can You Afford?
The biggest difference between a home equity loan and a line of credit, is the size of the payments you will have to make in order to repay the money you borrow. If you only need to borrow a small sum of money, then a home equity line of credit may be the best way for you to go. This is especially true if you will be able to repay whatever you borrow within just a few months of actually borrowing it. This is due to the fact that the biggest difference between a home equity loan and a line of credit is the interest rate you will pay.
A home equity loan will generally have a fixed interest rate, which will remain constant throughout the life of the loan. But a line of credit comes with a variable interest rate, which will change every time the interests rates go up or down, and will take your monthly payment with it. If you are going to only borrow a small amount of money, and are trying to decide between a home equity loan and a line of credit, then the line of credit may be your best option, as you could get in and out under a much lower interest rate.
On the other hand, if you have a choice between a home equity loan and a line of credit and you need to borrow a substantial sum, you should probably stick with a home equity loan, as the fixed interest rate will remain constant throughout the life of the loan. This means that no matter how high the current interest rate is, your monthly payments will not change.
People who borrow large sums against a home equity line of credit, run the risk of their payments skyrocketing too high for them to pay.We hope that this information will help you to make the best decision as to whether a home equity loan or line of credit is for you.
