When is a Home Equity Loan Better than a HELOC?

Question

Hello BP,

When is a Home Equity Loan better than a HELOC?

My understanding that a Home Equity Loan is simple and straight forward. I’m not familiar with typical LTV’s or processing fees attached.

A HELOC sounds like a better option and I would bet that the majority of members would pick HELOC over an Equity Loan and would refinance over an equity loan. However, in the offset chance of a market downturn, how likely is it that a bank would close a HELOC and request borrowed credit back? Would that make an equity loan better? What causes a bank to request the line of credit back and how would they go about that process? And what are the benefits of a HELOC vs an equity loan in case I’m missing anything? Thank you

Michael Lewis Lee · Answer

Hello Lawrence!  I'm not an expert, an Attorney, or a bank employee.  I'm just thinking out loud.  A HELOC secures itself on everything you own whereas the home equity loan usually just secures your home.  The rate of interest can also be a factor that might effect your decision.  A home equity loan might cost you in closing costs or fees.  A HELOC loan is usually easier than a home equity loan and be less time consuming if that makes a difference.  A home equity loan usually starts charging you the second you close whereby a HELOC will usually not charge you until you use it or write a check.

A home equity loan is usually making your debt payments higher right away, whether not when you spend the money.  The home equity loan is usually more strict to get than a HELOC from the underwriting. With the HELOC loan it does not matter how much on your home location or the demand for it or the comps or rise on the value since you bought.   There is probably some other factors I have not mentioned.  I might matter on your discipline to payoff the loan and it probably matters how long you have to repay the loan.  Is it fixed or variable