When deciding how to leverage the money in their homes, borrowers often have a difficult time deciding whether to take out a home equity line of credit (HELOC) or a home equity installment loan.

There’s no right answer. Instead, the best answer often depends on the reason the borrower wants a second mortgage loan.

BankingMyWay puts it this way:

“An installment loan is best if you have a single, large need, like a home renovation, since you know the rate will not go up even if you stretch the payments over many years. The HELOC is best used as a back-up fund, to get you through short periods when expenses exceed income. Because the rate on your balance can rise, it’s best to use a HELOC sparingly, and to pay your balance off as fast as you can.”

HELOCs tend to have lower initial fees and lower rates than home equity loans. But, their rates are not fixed and the line can be reduced (as we’ve seen in current months).

For more considerations and a chart comparing the two options, see: HELOC vs. Home Equity Loan.

Tags | equity, Heloc, home equity line of credit, second mortgage