Perhaps you have owned your home for a couple of years, and you need to make some repairs or perhaps you want to make some home improvements. Rather than emptying your savings account, or using a high interest credit card, you might want to consider securing a Home Equity Loan.

A Home Equity Loan is also known as a line of credit that allows you to borrow money using the equity (the difference between how much your home is worth and how much you owe on your mortgage), you have in your home as collateral (secured credit).

There are two different types of Home Equity Loans available to homeowners. Both are often referred to as second mortgages but the terms are different. We will explain the similarities and differences between the two so that you can make an informed decision when you apply for a Home Equity Loan.

The two types of Home Equity Loans are:

• Home Equity Loan
• Home Equity Line of Credit (also referred to as HELOC )

Both are secured by your property, just like your primary mortgage, however both generally are repaid in a shorter period than the first mortgage. Unlike a primary mortgage that has a payment spread over 30 years, Home Equity Loans and Home Equity Lines of Credit usually are have a repayment schedule of 15 years, although you can select a period as short as 5 years or as long as 30 years depending on your lender.

A Home Equity Loan is a one-time lump sum that is given to the borrower after closing and is to be paid off over a set period of time. The interest rate is fixed, providing the same monthly payment. Once you get the money, you cannot request additional money from this type of loan.

A Home Equity Line of Credit (HELOC) is similar to a credit card because it has a revolving balance. You are allowed to borrow up to a certain amount that is determined by the lender for the life (set by the lender) of the loan. During the time that you have the Home Equity Line of Credit, you can withdraw money as you need it. It is common for a lender to require you to take out an initial advance at time of closing, and may require that you withdraw a minimum amount each time you access some cash, and some lenders may require that you maintain a minimal outstanding balance. Much like a credit card, when you pay down or pay off the principal amount owed, you can borrow the money again. Unlike a Home Equity Loan, the HELOC has an adjustable interest rate that changes over of the life of the loan, resulting in variations in monthly payments.

A HELOC gives the borrower more flexibility because you have the ability to control what your balance is, borrowing only the amount that you need for a particular home improvement, unexpected expense, etc., thereby allowing you to be in better control of what your monthly payments will be.

Home Equity Lines of Credit have set 'draw periods,' the time frame in which you can borrow against it. It can be as short as 6 months or as long as 10 years, and a 'repayment' period which is spread over a period of 10-15 years and can go up to 20 years depending on the your lenders policy.

It is important to understand that during the 'draw period,' the minimal monthly payments cover only interest, although you can pay more and request that the extra money be applied to the principal. Because your minimal monthly payments only cover the interest, it is important to remember that it is possible that you will remain in debt during the life of the loan. During the repayment period you may not be able to borrow additional money against the HELOC even if you haven't reached the limit.

Now that we have discussed the different types of Home Equity Loans, let's consider the advantages and disadvantages of each.

When a homeowner decides to think about taking out a Home Equity Loan, it's often for home-improvements, home-repairs, unexpected expenses related to health care, college tuition, or perhaps even a long needed vacation. The Home Equity Loan provides a lump sum, and sometimes it's difficult to estimate how much money you really need, so it is possible that you borrow too much money, thereby unnecessarily tying yourself into a higher monthly payment obligation, or if you have underestimated the expense, you still may have to raid your savings account. The benefit of the Home Equity Loan is obvious, the interest rate is fixed, so your monthly obligation never changes over the life of the loan, and your payments are applied to both principal and interest, so when you refinance or sell your home the remaining balance is lower.

If you choose a Home Equity Line of Credit, you are more in control. You can withdraw the money as you need it, either by credit card, check, electronic transfer. You control the balance that you owe. The most obvious disadvantages are the adjustable interest rate feature, which can cause a substantial increase in your monthly payment if you carry a large balance, and the fact that your minimal monthly payments are applied only to interest, resulting in not having a lower payoff when you refinance your home or sell.

Before you sign on the dotted line, make sure you understand the terms of your Home Equity Loan. It is best to write down your goals that you want to accomplish with the loan and share this with your lender. Don't hesitate to ask your lender questions about the loan. Because the Home Equity Line of Credit has more details don't forget to ask:

• How long is the 'draw period'?
• How long is the 'repayment period'?
• What is the 'Cap' on the variable interest rate?
• What is the minimum that I must withdraw every time I access my line of credit?
• What is the minimum balance I am required to maintain in my account?
• Is there a pre-payment penalty if I refinance or sell my home before the end of the repayment period? (This question is applicable for both the Home Equity Loan and the Home Equity Line of Credit.)

There is no question that having the ability to use the equity that you have for unforeseen expenses or home-improvement or home repair is beneficial. However, remember to borrow responsibly. If you don't make your monthly payments on a Home Equity Loan, you can lose your home to foreclosure, even if you have a stellar payment history with your primary mortgage lender.