HELOC versus Home Equity Loan

HELOC versus Home Equity Loan

Which is better and why? I know it would be based on the person's situation but which one should I take out if I wish to take out the equity from my property with the lower interest rate?


You really need to decide how long you will need money

HELOC will give you a lower interest rate and a VERY SMALL payment if you are desiring that as interest only payments are typically an option. (If you are credit worthy, check out Third Federal HELOCS at like 2.5-2.75% today when I called). This would be ideal if you are flipping and need some cash to do so.

It is hard to argue however against fixed rates as can we really expect these to go much lower?? We have to be bouncing around the bottom. If you are planning this money for LONG TERM (perhaps a rental for buy and hold), I would lean toward locking in on a fixed rate.

Good Luck! Kate


"Whether you think you can or can't, you are probably right" Henry Ford

HELOC versus Home Equity Loan

With HELOC, you only pay whenever you use that money. As a flipper myself, I use this, so that I don't have to pay interest while I'm on idle.

Home Equity Loan, you pay every month, no matter what. Even if you are not using that money.

You need to evaluate what you need that money for, and use the best one for your needs.

HELOCS v. Home Equity Loans

Home equity loans are starting to evaporate from banks. However, if you think your job is in danger (and who's isn't), then you better apply for a home equity loan RIGHT NOW before your bank takes the ability to get one away. Once you secure one, you can sit back and feel a little relief. The bank IS NOT going to give you one once you've lost your job. You don't have to draw on it until you need it. However, that's not to say that if you secure one now, that in 2 years the bank won't cancel your home equity loan even if you've never touched it!

In the mid-2000s, banks were giving away HELOCs like crack if you were doing 100% financing using 80/20 loans. However, HELOCs are tied into the libor rate and can go up and up each month like an ARM. That's what happened to my 20% loan and within 1 year, my HELOC went up 1.5 points and I freaked out and refinanced that 20% loan into a 20 year fixed for the same interest rate as my HELOC had stated out at.

There are a lot of ins and outs re both. Do some googling and yahooing on the subject so you're really informed.

Happy financing!


I real like the flexablity of the HELOC for investing. With the HELOC if you do a property flip and pay off the loan you will still be able to pull money out for the next deal. With a home equity loan, when you pay it off you will need to reapply to pull money out again, that means paying closing costs again. I also believe the HELOC are much easier to find, 2nd mortgages are becoming harded to find.


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