Open and Closed ended HEL

Open Ended HEL:

This is somewhat the same way a credit card works. You take money against your home equity, and pay back in parts, and then again you borrow some amount, and thus this goes on. The entire loan amount is not lent upfront. This system may have a variable rate of interest.




Closed Ended HEL:

A closed end home equity loan refers to a one time loan, in which the borrowers receive a certain amount of money without the option of further borrowing. It is pretty common for borrowers to be able to borrow up to the full value of the appraised value of their home. However, there are some instances where they are able to receive higher than the value of their home in what are known as over-equity loans.

There is a specific difference between HEL and HE Line of credit (HELOC). The HELOC is a revolving line of credit with an adjustable interest rate, whereas HEL is a one time lump sum credit, with a fixed rate of interest. But do keep in mind, that HEL is a secured debt, wherein if the borrower is not able to pay back, the a/c is foreclosed, and the property is taken away. So guys, please be very careful.

I personally feel that if you have the right kind of judgment and knowledge, then a HEL can be a very good option. Otherwise, you might end up in a disaster. So, it would be very important to know the advantages and disadvantages of HEL, so that you may get a clear picture. (The advantages and disadvantages of HEL are the same as 2nd mortgage. So please go through the previous posts)