Home Equity Loans vs Home Equity Line Of Credit

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A home equity line of credit is quite similar to a home equity loan. However, there is a difference between the two and it is in your best interests to understand it so that you know which option is the best suited for your needs and requirements.A home equity loan is very much like a mortgage wherein you can borrow an amount based on the equity of your home. In other words, home equity builds as you keep clearing the mortgage. It is the value of your home that you have already paid off and this is the part that you actually own. You receive the money in a lump sum after you close the loan.Home equity line of credit is also based on the amount of the home you own but the loan terms are different. This works like a credit card where the amount you receive is limited to the equity you own in the home. You do not receive the money as a lump sum. Instead you can withdraw the amount as and when you need the money.When you take a loan against the equity in your home, you already know the monthly payments you have to make. However, when you avail a line of credit against your home equity, the payments as well as the interest vary. You pay only for what you use.If you need a lump sum to settle debts or you want to use the money for funding something, you should opt for a home equity loan. However, if you are not aware of an expense like that involved in traveling or starting a new business, you should opt for home equity line of credit.