HELOC vs HELOAN

Suze Orman discusses the differences between a home equity line of credit (HELOC) and a home equity loan (HELOAN).  She mentions that these two types of loans are used to withdraw equity out of your home in the case that your home has appreciate in value or you have paid down the mortgage and have equity sitting in the home.

She mentions that a HELOC is a loan which is tied to an adjustable interest rate, such as the prime lending rate set by the federal reserve, and payments will adjust up or down as the prime rate does.  HELOCs basically provide a fixed credit line for the borrower to draw upon and interest is only paid on the amount which has been taken from the credit line. Borrowers can use checks to draw upon the line of credit.

Conversely, on a home equity loan, you receive a fixed amount which has a fixed interest rate and a fixed payment until the loan is paid in full.

Suze prefers home equity loans when interest rates are low so that you can lock in a very low interest rate on the equity borrowed from your home.
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