Here in Texas there are two ways to do a home equity loan. The two types are home equity loan and home equity line of credit. On both of these loans there is not going to be any prepayment penalty and you can borrow up to 80% of the appraised value of your home. These loans can be used to pay off bills, consolidate debt, or pay for college. The money you borrow can be used for anything you wish.

Home equity loans are usually offered with a fixed rate but there are closing costs to be paid. These costs can usually be rolled into the loan do not have to be paid out of pocket. Depending on the loan to value (loan amount vs appraised amount) the rates are comparable to 30 year fixed mortgages.

Home equity line of credit loans usually come with no closing costs. They are tied to the prime rate and are usually adjustable. The rate will adjust according to what the prime rate does. It is basically a credit card (line of credit) tied to your property. While the rates are attractive now just 3 years ago the rates were around 9%.

When considering the best loan for you here are some questions to think about.

How long to you plan to stay in the home?

Are you going to be comfortable with the payment if the rate adjusts? (Remember you can only do one per year)

Would you feel better with a fixed or adjustable rate?

With the answers to these questions in mind you will be able to make a wiser decision regarding the type of loan that is best for you.