Home equity loans and lines of credit

Learn the differences between home equity lines of credit and loans.

Choosing a lender for a home equity loan or line is a big decision. Compare what reputable lenders will offer you. Compare and contrast two different ways of borrowing against the equity in your house or condominium.

Home equity loan vs. Home equity line of credit

Home equity loan (Second mortgage) Home equity line of credit
Provides a lump sum of money
Your lender will provide a lump sum.
Provides revolving credit
This type of credit allows an individual to borrow up to a certain amount of money, repay the money borrowed with interest when it is due, and then borrow the money again.
Uses your home as collateral
Your home secures the loan.
Uses your home as collateral
Your home secures the loan.
Must pay back by certain date
Your lender will specify a due date.
Repayment options may vary
Your lender will explain your repayment options.
Often used for a project
Home equity loans are often used for one specific purpose, for example, remodeling the house.
Various uses
Homeowners use their home equity lines of credit for a wide variety of purposes ranging from home improvements to college education.
Higher interest than first mortgage
The interest rate on a second mortgage is usually higher than on a first mortgage. Different financial institutions may offer different rates. Shop around.
Interest rates vary
Different financial institutions may offer different rates. Shop around. Some lines of credit have fixed interest rates; others have variable rates.
Tax deductible interest
Because these debts are secured by your home, part of the interest you’ll pay may be tax deductible, regardless of how you spend the money. Check with your tax advisor.
Tax deductible interest
Because these debts are secured by your home, part of the interest you’ll pay may be tax deductible, regardless of how you spend the money. Check with your tax advisor.

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