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A Home Equity Loan is another name for a 2nd mortgage. You borrow a fixed amount
and it is secured by your home, second to your first mortgage.
A Home Equity Line of Credit (HELOC) acts more like a credit card, but is still
secured by your home.
The HELOC's rate can increase, a fixed mortgage rate cannot. Just 7 years
ago, the HELOC's rate was 10-12 percent !
Both have advantages and disadvantages, so one must look at the total picture to
compare.
Generally, the Line Of Credit is best when it can be paid back over a short
period of time, say 5 years. There are fees to open it, there may be yearly
fees to keep it open, and possibly to close it as well. If you are given a loan
for 10k, even though you do not take out the money up front your credit report
will appear that you owe for the total amount and this can have a bearing on
other creditor's credit decisions. You can also get to the end of the line's
loan term and still owe money, as it works like a credit card with an
expiration date.
The HELOC has a lower interest rate and lower fees to start and the
revolving nature of the account can be a plus, but if you don't pay attention,
it can also burn you. Buyer beware ! Free Credit Report Information
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