Difference Between Home Equity Loans and a Home Equity Line of Credit
Know and understand the facts about home equity loans, home equity line of credit, HELOC. GFA is here to help with your home equity line of credit.
When Massachusetts and New England homeowners need to take advantage of the equity they've built up in their homes to leverage other financial demands, it’s very common to not know the difference between a home equity loan and a home equity line of credit. However, knowing the difference can help homeowners ensure that they're getting the least risk from the financial product while enjoying the best benefit from it. Here’s a quick look at both types of equity tools, including details to help you select the right product for your situation.
How are a home equity loan and home equity line of credit different?
Home Equity Loan
A home equity loan is often called a second mortgage. It is one lump sum, and follows the same basic process that your original mortgage did. When you use a home equity loan, you place your home as collateral. You'll often have the option of deciding some aspects of the terms, including the length of payments, and whether you'll have a fixed or adjustable rate on the loan. However, unlike your original mortgage, you're only taking out a loan on the equity you've built on your home. The option of using a fixed rate for a home equity loan allows you to lock in a low interest rate, but lacks the flexibility of a home equity line of credit.
Home Equity Line of Credit
A home equity line of credit , on the other hand, doesn't use your home as collateral, but the equity you've built up in it. It also offers a wider range of options in terms of how much you need to borrow and the size of your repayments against the line of credit, much like a credit card. This also makes it more flexible if you're borrowing to deal with an emergency that can temporarily impact your income or expenses, as you can choose to make a minimum payment instead of a set portion of a loan in the fashion of a traditional mortgage or car loan.
By knowing the difference between a home equity loan and a home equity line of credit, you can best leverage your home’s equity without unnecessarily risking your investment in your home. MA and NH homeowners can speak to a Better Banking Representative to get assistance with either a Home Equity Loan or a Home Equity Line of Credit. Please feel free to contact us today to discover the benefits of being a credit union member.