HELOC v.s Home Equity Loan

So what is the difference between a HELOC v.s. home equity loan? A HELOC is a line of credit while a standard 2^nd mortgage (home equity loan) is not. HELOC's are the more flexible of the two loans because you can borrow money against the HELOC as long as your loan limit permits it. Regular, fixed payment 2nd mortgages on the other hand have equal periodic payments and do not allow you to continually borrow against a limit. Standard 2^nd mortgages are commonly referred to as home equity loans (not lines of credit).

When choosing a HELOC or home equity loan, there are a few things you should know. We'll cover the basics of both so you have a better understanding of their differences.

HELOC

• Variable interest rate that can fluctuate with the PRIME lending rate
• Draw period where you can continually borrower against your home's value
• Interest only payment requirement during the draw period
• Shortened amortization when the draw period expires

Fixed Second Mortgage (home equity loan)

• Fixed interest rate (most of the time)
• Equal, periodic payments
• Cannot continually borrow against your home's value

The difference in interest rates between a home equity line of credit and a fixed second mortgage (home equity loan) varies. When the prime lending rate is low, a HELOC has the potential of having a very attractive interest rate. When the prime lending rate is higher, fixed rate home equity loans become more desirable in most circumstances where the flexibility of HELOC is not a concern. Contact a BeatMyBroker.com mortgage professional to find out which type of mortgage will work for your needs.