There are at least two types of home equity loans.
The first is a term or closed loan and the second is basically a line of credit. Most people prefer to refer to them as a second mortgage because they are secured against your home much like your first loan or mortgage. Typically, these types of home equity loans typically have a payback life of between 5 and 15 years.
The term loan is a single lump sum payment that is paid over a set period of time. There is a fixed interest rate that allows you to pay the same loan each month. After you get your money, you can’t borrow any more of the loan.
A home equity loan line of credit works much like a credit card. You are allowed to borrow up to a certain amount over the life of the loan. The time limit is usually set by the lender of the loan. During that time you can withdraw money as needed to buy items or pay for things that interest you. As you pay off the principal, your credit rotates and you can use it again. This line of credit gives you more flexibility than a term home equity loan.
Which of the two types of home equity loans you should use depends on your particular situation. You can base your decision on a few common questions, such as how much money you’ll need, how long you’ll need the money for, how long you’ll need to pay off the loan, and how much of a monthly payment you can afford.