Last week we took a look at the home equity loan and the home equity line of credit. We got a basic overview of what each is essentially "about." Today we will have a look at the pros and cons of a home equity line of credit v. a home equity loan.

With a home equity loan, you get a lump sum up front. For things like paying for a wedding, or making up the difference in education expenses, a lump sum can be quite desirable. A home equity line of credit, however, is on a more "as needed" basis. As long as you do not exceed your limit, you can keep taking money out without another loan (if you find you need more with a home equity loan, you have to reapply). A home equity line of credit is good for something like a home improvement project, where you might need to keep taking money out to pay for expenses.

Happily, the interest on both a home equity loan and a home equity line of credit is usually tax deductible (check with the IRS to be sure, though). However, you are likely to get a lower interest rate, and a fixed rate, on a home equity loan. While you can get a fixed rate on a home equity line of credit, you are far more likely to get a variable rate. This means that you could pay more overall in interest charges for the line of credit.

Tomorrow, we’ll have a look at using the home equity line of credit and the home equity loan to your advantage.

Tags: home equity loan, home equity line of credit v. home equity loan, financial planning, finances,
home equity line of credit, equity line of credit home improvement