How to Choose a Closed or Open End Home Equity Loan

Sometimes it's difficult to navigate the world of mortgage lending. If you are seeking to use some of the equity in your home and you already have a first mortgage or no mortgage at all you might consider a home equity loan. Home equity loans come either as open or closed. The differences are important and each has pros and cons depending on what you need to do with the money you extract from your home's worth.

Difficulty: Easy

Instructions

1. Pursue a close ended loan if you know exactly how much money you'll be needing and you don't plan to refinance for awhile. These loans can sometimes have a better rate. They typically will have a thirty year payment but the loan will actually come due in fifteen years, unlike most first mortgages.

2. Choose a home equity line of credit or open ended equity loan if you need flexibility. These loans are like large credit cards. Your rate will fluctuate depending on how much principle you owe, meaning how much money you've taken out of the line of credit.

3. Be aware that home equity lines of credit should be chosen with care if you have trouble managing your money. The rate will be variable and could adjust beyond your income stability if your financial situation isn't very stable.

4. Research your options in short and long term. Ask your broker to break out what your payments could be in a worst case scenario in two, five and ten years if you plan on staying in your home that long.