Home equity loans, as the name suggests, is a loan in which a borrower uses his home equity as collateral to secure money. Home equity loans provide you the perfect solution for financing your requirements, more so, if you wish to raise a substantial amount. You may require the amount to renovate your home so as to get a better price in the market or even finance a log-awaited vacation to an exotic locale. As the loan is secured by your property, you can not sell it till you pay off your loan.

Home equity loan is sometimes confused with second mortgage but there is a basic difference between the two. Second mortgage is a loan that involves a second lien on the property. It can come both with a fixed and an adjustable interest rate.

Home equity loan is used to describe home equity line of credit or HELOC. If you opt for a second mortgage, you will be given a fixed sum of money to be repaid on a set schedule, similar to your first mortgage. Keep in mind that the second mortgage does not supersede the first mortgage. Second mortgages are usually 15- to 30-year loans with a fixed rate of interest, which is determined based on your credit history, the price of the home, and the current interest rate.

A HELOC, functions like a credit card. You are not extended the entire loan amount in lump sum. You can borrow the amount you need and you will be required to pay the rate of interest only on the amount you have borrowed. As in the case of credit cards, there is an upper limit to which you can borrow. This limit is determined based on your creditworthiness

Once the basic difference between the two is clear, the question arises which one is better. The best option for you will depend on your current financial needs. If you require money for a one time expense, say for renovating your home or paying for a vacation or wedding, you should probably opt for the second mortgage.

However, if your financial requirements are the recurring types, for example tuition payments, HELOC would serve your purpose better. Your financial conditions will also help you determine the type of loan you take. For example, if you have a well-paying job and you can pay back your debts quickly, you can save money over a second mortgage.

Then again, you should also take into consideration, your spending habits. A HELOC is much like a credit card and so if you are prone to spending, then this loan is not for you.

If so desired, our partners can also provide you with comprehensive investment management advice and / or facilitate secured loans.