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Choosing HELOC Over Equity Loans

Oct 12, 2007
If you own a house, that's a great way to avail of loans. One can easily obtain secured loans by using the house as collateral. Moreover, secured loans are a lot more affordable than the unsecured variety. Those who have no mortgages to pay could easily go in for the secured loans. Those who are still paying off the mortgage installments can make use of the equity on their home to pay for whatever other bills they may have. More importantly, these days, one need not rely completely on home equity loans. There are other lines of credit that can be utilized.

HELOC or Home Equity Line of Credit is one of the options that can be used instead of the home equity loan. In the case of HELOC, the bank provides a number of equity checks that may be written out at different times to take a loan depending on one's equity balance. These equity checks, typically allow us to draw on the a given balance. The great thing about HELOC is that we are not required to draw a large sum at one time. The checks give us the freedom to draw small sums or large sums as required at the time.

This also means that the interest amount that we pay every month varies depending on the amounts that we have drawn. Moreover, the rates of interest for home equity lines of credit are variable. They are subject to changes in the market. Thus, you might find yourself paying a higher interest rate one month, and a considerably lower one in the next. However, while finalizing a loan, make sure that you go with the one that charges a lower APR overall. Also, see to it that you ask what the cap is on the interest that shall have to be paid. This rate cap is different across states and lenders.

Thus, a HELOC is very different from the traditional home equity loan. Whereas HELOC allows one to advance oneself varying loan amounts over a period of time, a home equity loan amount is paid at one go. Just as HELOC has variable rates, a home equity loan charges fixed rates of interest. This rate will not be subject to ups and downs depending on market conditions. As far as repayment terms are concerned, a home equity loan involves fixed monthly payments that are made over a given period. In HELOC, one is offered much more flexibility. Overall, the two are very different, and choosing one and not the other would depend on personal needs.
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