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Mortgage Choices: Home Equity Loan vs. HELOC

Gabriel Traverso
LoanBiz Columnist

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Finding the right home equity loan for you is all about your intentions for the loan proceeds. When evaluating a equity loan, how do you know which is right for you?

Home Equity Loan: The Stable Solution

A home equity loan is a second mortgage you can use for just about anything--most loans have few restrictions. If you're looking for a California home loan you can use to consolidate large debts, make a down payment on an investment property, or take care of an expensive medical emergency, then the home equity loan is a great choice. This fixed second mortgage delivers a lump sum at closing and your payments work just like a regular mortgage. You'll be limited in some cases to 85% of the equity you have in your home and pay higher interest than on a first mortgage, but seconds cost much less to take out.

HELOC: First in Flexibility

If you're planning an extensive remodeling project, especially if you want to do most of the work yourself, then a home equity line of credit (HELOC) might be the California home loan for you. This also works well for expenses, such as college tuition, that you pay over an extended period of time. Like the home equity loan, you can use the money for whatever you need. This loan works much like a credit card--but with lower interest rates than most credit cards. The HELOC is a credit line you can draw on and repay over and over, only paying interest on the amount you use.

Mortgage Choices: Consider Your Goals

Take a look at your plans for the money and use that to determine which loan is right for you. Both allow you to draw on your home equity for cash. Additionally, most home equity loans and lines of credit can offer tax advantages, such as deductible interest--but check with your accountant for more information.


About the Author
Gabriel Traverso is a freelance writer, professional musician, and artist. He resides with his family in Reno, NV.

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