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What’s the difference between a home equity loan and a home equity line?


The main difference is that you’re definitely borrowing money in the case of a loan and have a facility to borrow, but don’t necessarily do it, in the case of a line. Say you take out a $100,000 home equity loan. That is how much you owe and how much, plus interest, you will repay through monthly payments, just as with your first mortgage. If you have a $100,000 home equity line, the lender is allowing you to borrow any amount up to that figure. The payments you make will vary with the outstanding balance.
Another key difference is that the interest rate on a typical home equity loan is fixed when you make the loan, while the rate on a line is variable. If you’re fairly sure you’re going to need to borrow, it could make sense to take out a loan and lock in an interest rate for the long haul if rates are very low, as they are now. Otherwise, the flexibility of a line could make that the better option. Just remember that with each type of facility, you are using your house as collateral. If you miss payments, you risk foreclosure the same as if you skip payments on your first mortgage.
-Conrad de Aenlle