What is the Difference between a Home Equity Loan and a Home Equity Line of Credit?

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I have equity built up in my home but I don't know how to get to it. Read more to find out the differences between home equity loan or a home equity line of credit. Still not sure which is right for you? Visit the LendingTree.com Smart Borrower Center to learn more. Go to http://www.lendingtree.com/smartborrower.

If you plan on borrowing against the equity in your home, it's critical to know the pros and cons of both home equity loans and home equity lines of credit.

Home Equity Loans

Sometimes known as second mortgages, home equity loans let you borrow a lump sum, usually at a fixed interest rate. You pay in fixed installments (same payment at the same time each month), as with a mortgage. A home equity loan may also involve closing costs, similar to a mortgage. However, some lenders may forgo the closing costs or even offer teaser rates, which are low rates for an initial period, to try to win your business. These loans are typically best for those consolidating high interest debts such as credit card balances. In addition, these loans are also a great way to pay for major expenses, such as college costs for your child, as long as the payments fit into your monthly budget.

Home Equity Lines of Credit

Home equity lines of credit normally carry a variable interest rate. The lender sets a limit and allows you to borrow by writing checks up to that amount. Any amount you borrow reduces the amount available until you pay it back. Once an amount is repaid, you can borrow it again. Home equity lines of credit are typically best for a homeowner who needs money to pay for a long-term renovation project that comes in stages. The line of credit gives you access to the amount of cash that you need, when you need it and you only pay interest on what you have borrowed.

As with any loan, it is critical to use your equity wisely:

  •     Borrow against your home only when you know you can repay it, as most home equity lines of credit have adjustable interest rates that might increase over time.
  •     Understand that you've put your home on the line as collateral, so make sure you can pay your loan back or you may be at risk to lose your home.
  •     Use home equity to make home improvements to your home if it will add value to your investment.
  •     Look closely at the neighborhood you move into, because the market value of your home directly affects your equity.
  •     Build equity faster by making a bigger down payment on your home or by paying off your mortgage faster.

For additional information about using a home equity loan or a home equity line of credit, please visit the LendingTree Smart Borrower Center.

About LendingTree, LLC

LendingTree, LLC is the nation's number one online lending exchange, providing a marketplace that connects consumers with multiple lenders that compete for their business. Since inception, LendingTree has facilitated more than 20 million loan requests and $152 billion in closed loan transactions. LendingTree provides access to mortgages and refinance loans, home equity loans/lines of credit, auto loans, personal loans, and credit cards via http://www.lendingtree.com and 800-555-TREE.

Launched in 1998 with headquarters in Charlotte, North Carolina, LendingTree, LLC is part of IAC Financial Services and Real Estate, an operating business of IAC/InterActiveCorp (NASDAQ: IACI), which also owns or operates LendingTree Loans, LendingTree Settlement Services, LLC, GetSmart®, RealEstate.com®, Domania®, and iNest®.


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