A common question we get from blog readers: What is the difference between a HELOC and equity loan? Both are loans secured by a mortgage against your home. This lien can be in 1st or 2nd position.
The main difference is a home equity line of credit is like a credit card,(the bank issues a card and checks after closing) you charge on it or cash checks when you want to use the line. You make small monthly interest payments and when you repay the balance the available credit is there to be drawn on when you need it again.
When you take out an installment home equity loan all the cash is dispersed at closing and you make fixed (or adjustable) monthly principal and interest payments for the term of the loan until the principal is fully repaid.
A line usually converts into an adjustable loan after 10 years if you are still carrying a balance. This is also referred to as the payback or principal repayment period where you’ll make principal and interest payments instead of interest only minimums. During a credit crunch lenders can freeze credit lines reducing available credit to zero.
What is a home equity loan line of credit?
Recapping above, it’s a credit line secured by a first or second mortgage on your home. You’ll get access to the available balance via a Visa or MasterCard and check book.
What is the difference between home equity loan and second mortgage?
This can be a little confusing since the term is used to describe any loan secured by home equity. It can be a 1st or 2nd lien. A 2nd mortgage is always a junior (2nd) loan behind a senior (1st) lien.
Can I get a home equity loan with bad credit?
updated: July 7, 2015
Yes you can now get a fixed 2nd mortgage with bad credit only available with a private portfolio lender (not corner banks) or as a 1st mortgage or hard money loan with higher interest rates. If you have an existing low rate first mortgage you should look at getting a 2nd then your low rate first would not need to be paid off in order for you to additional get cash out with a HEL.
What can a HEL or HELOC be used for?
Any purpose, cash out for vacation or to payoff other bills (debt consolidation). Many people use the lines for emergency reserve funds or for short term investments to buy and rehab other real estate.
How do I apply?
You can apply online or find a bank or lender, call to set an appointment, then go see them in person.
Are they tax deductible?
This depends on what the funds are used for check with an accounting professional.
