The home equity loan puzzle

Home loan plans require flexibility and time apart from some money on good interest rates. So while you borrow money through home secured loan route, do ensure that these two attributes are build into your loan structure.

A home equity loan or what is more popularly known as the second mortgage loan is a lending that gets secured by the equity in your home. The equity is defined as the net difference between your proposed borrowing and the market valuation of your property as per the lender norms.

There are two variants of the home equity loan. The first one is the simple home equity loan. It is also referred to as the close ended loan. Here you get a loan in a lump sum amount the repayment of which is spread over a fixed period of time with a fixed equated monthly installment.

The second line is known as the equity line of credit. The sanctioned amount is made available to your use as and when you need it. The interest rates are variable and are charged only for the amount which you have withdrawn or are being used by you.  The entire sanctioned loan amount is not charged the interest. The borrower saves a lot of cash by way of interest savings.

This line of credit is more suited for your home improvement loans whereas the former line of credit (simple equity loan) is better suited for purchase of property/home.