Your Complete Guide To A Home Equity Loan

When you hear the word HELOC (pronounced hee-lok) what do you think? I’m sure a home equity line of credit isn’t the first thing that comes to mind.

 

What Is A Home Equity Loan?

More commonly known as a second mortgage, a home equity line of credit is a loan that uses the equity in your home as collateral. Like most loans, the amount you can draw from is a pre-agreed upon amount between you and the bank and will accrue interest over the term of repayment. There are two main categories of home equity loans on the market today. Let’s walk through what they are:

 

Home Equity Line Of Credit (HELOC)

A home equity line of credit is similar to any other line of credit or credit card in the fact that you are given an approved amount of money and can draw from it on multiple occasions and is great for something like home renovations. For example, if you had a $30,000 line of credit and you needed to pay a contractor one week or pay for your new couch the next, you can take both funds out on separate dates.

 

Home Equity Loan

A home equity loan is slightly different than a line of credit. For a home equity loan, you will receive a lump sum payment upfront and would start accruing interest on the full amount rather than what you draw. This type of loan would be ideal if you needed to make a larger payment upfront or wanted to do something like debt consolidation.

 

While both categories draw from your homes’ equity as collateral, they do have unique advantages and disadvantages. We strongly recommend that before moving forward with any type of loan, you do your research and talk with a financial advisor so that you can make an informed decision.