Home equity loans are generally termed as second mortgages and have a fixed interest rate. The same payments remains the same each month over term of 5 to 20 years. There is also the unique one-time distribution of the loan. Once you receive the money, no further borrowing is possible.

A home equity line of credit can be re-used and is secured by a second mortgage on your home. It has a variable interest rate, which fluctuates based on the prime rate as published in the Wall Street Journal. There is a draw period of 10 to 15 years, during which you can withdraw the money as you need it, and use it again as you make the repayments. At the end of the draw period, the line of credit either converts to a fully amortized loan or must be repaid.

If you need a large amount amount of money to repay your existing debts you need to consolidate your debts and then go for a home equity loan which is the best choice because a large loan amount can be easier to pay off with a specific period of fixed installment payments. Since a home equity line of credit allows the option of an interest only payment, there is a great temptation to neglect paying down the principal balance. Also, with a variable interest rate, there is a risk that over a longer period of time, you could end up paying more if rates were to rise high enough.

If you decide to borrow relatively small amounts and repay the principal quickly, a line of credit can cost less than a home equity loan. A line of credit provides the flexibility of accessing money in amounts only when you need it.