Home Equity Loan or Line of Credit, What’s the Difference?
September 17, 2007 –Should you get a home equity loan or a home equity line of credit, known as a HELOC? Wikipedia says that both home equity lines of credit and home equity loans “are usually referred to as second mortgages, because they are secured against the value of the property, just like a traditional mortgage.” The popular vernacular is hardly a definition as to features of a legal instrument.
The really significant difference is the disposition of payments as they apply to the principal balance. A closed end loan (home equity loan) can account for payments against the principle only once a month by law, whereas an open end loan (home equity line of credit) can receive payments at any time and immediately reduce the principle to which interest is applied.
The amount of interest paid on a loan is no small issue. If I can reduce my interest even if only for a few days by depositing my paycheck into my home line of credit loan it could cost me thousands less for a loan. There are reasons to choose one instrument over another and we will get into these in another article.
Popularity: 93% [?]
