On the other hand, somebody that needs flexibility to spend different amounts over a period of time might be better suited with a home equity line of credit (HELOC) because you will only pay interest on the funds that you use. However, HELOC interest rates are fully adjustable and fluctuate with the Prime Rate.

Although there can be closing costs, they will likely be less than in a cash-out refinance (which, since it is a kind of mortgage refinance, has some differences than second mortgages), and they are only applied if you take out a loan.

A HELOC, on the other hand, may require an annual fee, regardless of how much of it (if any at all), is used. Naturally, whether or not paying closing costs is an advantage depends on how much one would have spent on HELOC fees.

One certain advantage involves budgeting monthly payments. Payments won't fluctuate because the payment schedule is determined at the outset of the loan (and since the loan amount can't vary, like with a HELOC).

Another potential advantage of a HEL is for less-disciplined borrowers. This involves two things.

First, there is the loan amount. In a home equity loan, the borrower takes only one loan and often knows exactly where it is going.

In a HELOC, a borrower runs a risk of abusing the line of credit. The only way a borrower can get more money from a home equity loan is to take another loan, which requires considerably more effort (and time) than simply dipping into the HELOC.

Likewise, a less-disciplined borrower has less risk of getting into trouble with a home equity line's terms.

A home equity loan has the same payment amount each month on a schedule that is designed to eliminate the debt.

[a HELOC is not an unlimited faucet to a home's equity. Borrower's qualify for a very specific credit limit, and they are cut off once they reach this credit limit, so this statement is misleading, and not true.]

Next: Would you like to experiment with a home equity calculator or to be matched with up to five home equity and second mortgage lenders?