Mortgage / Equity

Home Equity
Equity Line of Credit vs Equity Loan

An equity line of credit is almost always a better deal for a homeowner than an equity loan.

The reason an equity line of credit is a better deal is that a homeowner can limit what they borrow with such an arrangement. With an equity loan the homeowner will have to borrow a specific amount of money and pay it all off.

An equity line of credit is an agreement that lets you borrow up to a certain amount against the equity in your home. An equity loan is a lump sump of money backed by the equity in your home.

An equity line of credit is simply a guarantee that credit will be there when you need it. A loan is a sum of money that you will have to pay back.

Equity Line of Credit Advantages

The advantages that an equity line of credit provides a homeowner can be substantial. The first advantage is that the amount borrowed is flexible. If a homeowner doesn’t know how much they will need to borrow they don’t have to take out extra money they have to pay back. This also limits the amount of interest a homeowner will have to pay.

Another big advantage is that a line of credit is an agreement that can remain in effect for a long period of time. This means that the homeowner might be able to come back and borrow more money in the future without making another loan application. This can enable a homeowner to avoid having additional credit reports run which is an action that can damage a person’s credit rating.

With an equity line of credit the homeowner will be able to borrow additional money even after they have repaid what they borrowed. This could make life easy for a person who has to borrow a lot of money against their home.

Advantages to Home Equity Loans vs. Home Equity Lines of Credit

There are a few advantages to home equity loans vs. home equity lines of credit. A home equity loan can enable you to take advantage of more equity than a line of credit.

With a home equity line of credit you are usually limited to borrowing up to an amount equal to a percentage of the equity borrowed against. This amount is usually around 80% of the equity available. Under this arrangement you would be able to borrow $28,000 if you had $30,000 worth equity available. With an equity loan you might be able to borrow all $30,000.

Another advantage to a home equity loan is that it is a one time arrangement. This means you won’t have the temptation of being able to borrow extra cash from the home equity line of credit every time want. Many people abuse home equity lines of credit and end up facing foreclosure because they can’t pay off all the debt owed on their home. 

Which to Choose

Deciding between the equity line of credit vs. the equity loan can be tough. This decision should be made based upon your circumstances.

Generally, you should get an equity line of credit when you believe you will be facing continuing expenses or will need money for time to come. For example when you have an older house that needs a lot of repairs or are involved in an ongoing remodeling project.

You should get a home equity loan when you only need the money once. An example of such a situation would be a one time remodeling project or an addition such as a swimming pool. In such a situation a loan could be a better deal.