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Types of Home Equity Loan

October 16, 2009

Author: William M. Davis



A home equity loan is popularly abbreviated as HEL. It is a loan in which the equity in a home is used as a collateral security to get the HEL.

Let us take an example and analyze it to understand this further. You have bought a house taking a loan for 85% of the value of the house. After 10 years, you have paid off a lot and now only 50% of the value of the house is remaining to be paid. For your daughter’s college education, you need some urgent money. What do you do? The balance 50% of the value of the house that is in your hands can be given as collateral and you can obtain a home equity loan.

Types of Home Equity loans

A HEL can be of two types depending on whether there is an end date for the loan or not

i) Closed End Home Equity Loan

In this loan, there will be an end date for the loan and money cannot be further drawn after that date. These home equity loans normally carry fixed rates of interest and the amount is amortized for a period of up to 15 years usually. An easy way to understand this loan is ‘one lump sum of money given to you in one shot.’

ii) Open End Home Equity Loan

This type of loan is also popularly known as home equity line of credit. It is a revolving credit loan which is available for even up to 30 years. It has a variable interest rate usually and it is possible to borrow even up to 100% of the value of the house. A simple line to describe this is ‘borrow money as and when you need!’

An open ended HEL carries no closing costs but a close ended HEL normally carries closing costs. It is vital to understand the features of both the types of the home equity loans and their pros and cons before opting for one.
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One Response to “Types of Home Equity Loan”

  1. 7 Steps to Beating the Financial Crunch with Home Equity Loans | Bad Credit Repair Scams says:
    June 24, 2011 at 11:37 am

    [...] loan of $150,000, your home equity is $150,000. This equity can help you during emergency. You can opt for home equity loan if you need loans during a financial crisis if they keep their home as a [...]

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