Types of Home Equity Loans

There are at least two types of home equity loans.

The first is a term or closed loan and the second is basically a line of credit. Most people prefer to refer to them as a second mortgage because they are secured against your home in much the same way as your first home loan or mortgage. Typically, these types of home equity loans typically have a useful repayment life of between 5 and 15 years.

The term loan is a one-time payment that is paid over a specified period of time. There is a fixed interest rate that allows the same loan repayment every month. Once you get your money, you will not be able to borrow any more from the loan.

A home equity line of credit works more like a credit card. You are allowed to borrow up to a certain amount over the life of the loan. The time limit is generally set by the loan lender. During that time, you can withdraw money as you need it to buy items or pay for things that interest you. As you pay off the principal, your credit is scrambled and you can use it again. This line of credit gives you more flexibility than a term home equity loan.

Whichever of the two types of home equity loans you should use depends on your particular situation. You can base your decision on some common questions, such as how much money you will need, how long you will need the money, how long you will need to pay off the loan, and how much you can afford in the monthly payment.