Q&A

Q Do I need the money in a lump sum or in several installments?
A If you need it in a lump sum, lean toward getting a home equity loan. If you need the money in installments, lean toward getting an equity line of credit.

Q Is it for a long-term purpose or a short-term purpose?
A If the money is to be spent on something that will last a long time, such as a roof or a car, an equity loan might be better. If the money is to be spent on something that won't last long, such as a semester in college or a wedding and reception, think about getting an equity line of credit.

Q How big a monthly payment can I handle?
A A home equity loan requires you to pay principal and interest every month for the life of the loan. A home equity line of credit allows you to pay just the interest for several years, if that's what you want to do. It's a whole other question whether it's a good idea to pay only the interest, and not the principal, for a long time.

Q Would a line of credit tempt me to use the money carelessly?
A Naturally, if you answer this in the affirmative, you should consider getting a home equity loan because you pay off the principal and interest over time, and it's not a revolving credit account.

Q Does a variable rate bother me?
A A home equity line of credit has an adjustable rate that most likely changes every time the Federal Reserve raises or lowers the federal funds rate. If you don't like the idea of having a rate that could rise every time the Fed meets, consider getting a home equity loan, which has a fixed rate.