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Home Equity Loan Or Home Equity Line Of Credit (HELOC)?

Contributed by mm | September 15, 2006 5:46 AM PST





Ask yourself these five questions before you decide whehter to pick up a home equity loan or line of credit.

From Bankrate:

A home equity loan might be the best fit if you plan to use the money in a lump sum for a one-time occasion such as consolidating your credit card debt, replacing the roof, or paying for your daughter's wedding. The interest rate is fixed, and so are the monthly payments, and you can budget accordingly.

A HELOC -- home equity line of credit -- might be a better fit if you will need money periodically and not all at once. This is the case in lengthy home remodeling projects when you pay the contractor in two or more draws. Or perhaps you will need to shed an arm and a leg at the beginning of each semester over the next four years when the kids head off to college. A HELOC gives you the flexibility to borrow what you need, when you need it.

1. Do I need the money in a lump sum, or in several installments?
2. Is it for a long-term purpose, or a short-term purpose?
3. How big a monthly payment can I handle?
4. Would a line of credit tempt me to use the money carelessly?
5. Does a variable rate bother me?

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