Home Equity Loan Products

Homeowners have the advantage of having a ready alternative source of funding through obtaining a mortgage loan using the value of their home’s equity as collateral. There are two main types of home equity loan products – home equity loans and home equity line of credit. Both these loan products are secured by the property in lien and as such possess the added advantage of having low interest rates and flexible terms.

Home equity loans and line of credit compared

Comparing home equity loan and home equity line of credit can be simplified by likening them to cash loans and credit cards respectively. The main difference between these home equity debt products is that with home equity mortgage products, these are secured via real estate equity.

Home equity loans are granted to the borrower usually as a lump sum amount with a prescribed interest rate and payable through a structured pay schedule. Generally, home equity loans feature a fixed interest rate and interest payments may be tax-deductible.

On the other hand, home equity line of credit is made available to borrowers which may be withdrawn at a time of their choosing. Borrowers with line of credit extended to them need not take the whole amount. They may choose to avail of only a portion of the fund but may not exceed their credit limit. Because of this, home equity loan products that offer line of credit usually have low flexible rates and payment schedule.

Which home equity product to choose

The choice between getting a home equity loan or line of credit boils down to the borrower’s need. If the fund is to be used for a one-time expense, an equity loan would be the most logical choice. However, if it is a recurring expense or one that is seasonal or periodical through a long term, getting an equity line of credit makes more sense.

Either of these home equity loan products would be a helpful addition to one’s financial arsenal. Interest rates vary from state to state and specific terms and conditions differ from one provider to the next. Homeowners should study and shop around for the best deals that will suit their particular financial requirements.