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EQUITY LOANS
Is a Home Equity Loan Right for You?

Home equity loans are big news these days, but are they right for you? First, before you can decide, you need to know the facts about home equity loans. Home equity loans come in two different forms: closed-end home equity loans and home equity lines of credit.

Closed-end home equity loans are very similar to your home mortgage: a specific amount of money is loaned to you and you’re required to make scheduled monthly repayments of principal and interest. These loans are often thought of as traditional second mortgages. The date you must repay the loan is set when you borrow the money. Often interest rates are fixed.

In contrast, a home equity line of credit is more like a credit card. Home equity lines of credit allow you to use as much (or as little) of the credit line as you like, up to an approved dollar amount. You can withdraw money when you want to use it. Typically you have between five and 20 years to access this credit line. Once this period has ended, you must stop borrowing and repay the principal and interest. You may have between 10 and 20 years to repay, or you may have a balloon payment. Balloon payments require you to pay the principal in one lump payment. Often the credit interest rate is adjustable and changes as the economy changes.

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