Difference Between a Home Equity Loan & a HELOC
A home equity loan is generally a fixed rate loan, while the HELOC, or Home Equity Line of Credit, is like having a credit card on a home. Find out how the HELOC can be used for debt consolidation with help from a financial adviser in this free video on home equity and personal finance.
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Hi, this is Matt McKillen with Innovative Financial Group. The question posed to me today is what is the difference between a home equity loan and a HELOC? Well they're two very different products. Generally they're second mortgage products behind your first mortgage. The first option is the home equity loan, is generally a fixed rate loan. It may be anywhere from ten thousand dollars on up and the bank will generally set up a term of repayment from five to fifteen years and it's on a set advertised schedule to pay in full, so your payments don't fluctuate throughout the life of the mortgage. The second program the HELOC - that is short for Home Equity Line of Credit. Basically the way that HELOC works is that it's like having a credit card on your home, they may give you a credit line that's available for fifty thousand dollars, if you don't use it, then obviously you don't owe the money to them, it's there for emergencies, debt consolidation, but it is an open ended loan, which means that it is tied to whatever the current month prime rate is, so it is adjustable. Generally you have a ten year repayment or draw period where you can actually access the line, but after ten years they normally freeze the line and they put you on a set term of repayment. Again, my name is Matt McKillen, I'm with Innovative Financial Group.