| Ever wonder the difference between a home equity | | | | your home and size of your loan. The two most |
| loan and a home equity line of credit? They both allow | | | | common indexes used are Prime and Libor. When |
| you to borrow money using your home's equity as | | | | added to your margin, you get your interest rate. |
| collateral and are often referred to as second | | | | Repayment is usually set up as interest only and the |
| mortgages. Although they sound similar, the key | | | | term is typically a 10 or 15 year balloon. |
| differences are highlighted below. | | | | Home equity lines of credit provide you more flexibility |
| Home Equity Loans: | | | | as you can continue to draw on the line during your |
| A home equity loan is a one-time lump sum of money | | | | draw period. Your payments are usually lower as they |
| with a fixed interest rate and term for repayment. The | | | | are interest only, but this also means you can remain in |
| payment consists of both principle and interest and the | | | | debt longer. |
| term is usually 15 years, but can be as short as 5 | | | | With home equity loans, there is usually a premium |
| years and as long as 30. | | | | associated for having the security of a fixed rate. |
| Home Equity Lines of Credit (HELOC): | | | | Although your rate and payments are higher you |
| This is a line of credit more similar to a credit card as it | | | | know what to expect each month because your |
| has a revolving balance that can be used to draw | | | | payment is fixed and you are paying both principle and |
| money over a period of time. It is a variable rate loan | | | | interest. |
| which consists of a margin and index. Your margin is | | | | When you sell the house, the balance of both home |
| determined by factors such as credit scores, equity in | | | | equity loans and lines of credit will be paid off. |