The choice between a home-equity loan or a line of credit is seldom black or white. But here are a couple of generalizations:
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.
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. 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.
To help you determine which loan best suits your needs, ask yourself these questions:
- Do I need the money in a lump sum, or in several installments? If you need it in a lump sum, lean toward getting a home-equity loan. If you need the money in installments, lean toward getting an equity line of credit.
- Is it for a long-term purpose, or a short-term purpose? If the money is to be spent on something that will last a long time, like a roof or a car, an equity loan might be better. If the money is to be spent on something that won't last long, like a semester in college or a wedding and reception, think about getting an equity line of credit.
- How big a monthly payment can I handle? A home-equity loan requires you to pay principal and interest every month for the life of the loan. A home-equity line of credit allows you to pay just the interest for several years, if that's what you want to do. It's a whole other question whether it's a good idea to pay only the interest, and not the principal, for a long time.
- Would a line of credit tempt me to use the money carelessly? Naturally, if you answer this in the affirmative, you should consider getting a home-equity loan, because you pay off the principal and interest over time, and it's not a revolving credit account.
- Does a variable rate bother me? A home-equity line of credit has an adjustable rate that probably changes every time the Federal Reserve raises or drops the federal funds rate. If you don't like the idea of having a rate that could rise every time the Fed meets, consider getting a home-equity loan, which has a fixed rate.
Copyright CHICAGO SUN-TIMES 2006
Provided by ProQuest Information and Learning Company. All rights Reserved.
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.
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. 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.
To help you determine which loan best suits your needs, ask yourself these questions:
- Do I need the money in a lump sum, or in several installments? If you need it in a lump sum, lean toward getting a home-equity loan. If you need the money in installments, lean toward getting an equity line of credit.
- Is it for a long-term purpose, or a short-term purpose? If the money is to be spent on something that will last a long time, like a roof or a car, an equity loan might be better. If the money is to be spent on something that won't last long, like a semester in college or a wedding and reception, think about getting an equity line of credit.
- How big a monthly payment can I handle? A home-equity loan requires you to pay principal and interest every month for the life of the loan. A home-equity line of credit allows you to pay just the interest for several years, if that's what you want to do. It's a whole other question whether it's a good idea to pay only the interest, and not the principal, for a long time.
- Would a line of credit tempt me to use the money carelessly? Naturally, if you answer this in the affirmative, you should consider getting a home-equity loan, because you pay off the principal and interest over time, and it's not a revolving credit account.
- Does a variable rate bother me? A home-equity line of credit has an adjustable rate that probably changes every time the Federal Reserve raises or drops the federal funds rate. If you don't like the idea of having a rate that could rise every time the Fed meets, consider getting a home-equity loan, which has a fixed rate.
Copyright CHICAGO SUN-TIMES 2006
Provided by ProQuest Information and Learning Company. All rights Reserved.
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