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If you are a homeowner in need of some instant cash, you may be looking into different financial options and one of them is borrowing against your home equity using a home equity line of credit. Whether you're building an addition to your home or just paying down credit card debt, if you have equity in your home, you may be able to qualify for a home equity line of credit or take out a loan against your house. But which is the best option, a line of credit or a loan? This depends on your personal situation. Read on to see how each scenario can help you decide which option is best for you.

Loan Against Your House

If you apply for a loan against your home, you are basically applying for a second mortgage. With fixed rate second mortgage loan, you can borrow a set amount with fixed rate and make fixed payments every bill cycle, which could be anywhere from ten to thirty years; depending on whether you borrowed a short term or long term loan. The advantage of taking out a second mortgage allows you to know in advance how much you have to pay each month, which will help with budgeting. So having a loan may be a good option for you if you need a large amount of money all at once.

Line of Credit

A home equity line of credit, on the other hand, gives you flexibility and allows you to tap the equity in your house more than once, on an as-needed basis. For example, you might be approved for a $50,000 line of credit against your home equity. In that case, you would be able to borrow $1,000, $2,000 or $10,000 against your credit, writing a check for whatever amount you need. You only pay interest on the amount that you borrow, so if you don't borrow anything, you don't pay any interest. Ahome equity line of credit is typically structured to expire before your 30 year mortgage ends, so it may have a "draw" period, in which you can borrow at will (as well as a "payback" period, in which you must make payments against the line of credit). You may also have restrictions on how much you can withdraw. Your contract should spell out clearly what the restrictions are on your line of credit, and explaining any circumstances under which the entire outstanding balance would become due at once.

If you need to borrow money but you're uneasy about doing it, one way that's pretty safe is to borrow against your certificate of deposit, or CDs as they are called for short. When you take out a loan using your CD as collateral, you're ensuring that you'll be making money on the CD while at the same time enjoying the benefits of your new loan. You may have invested in your CD at a certain bank, and then, for whatever reason, seek to get the loan from another bank. In most instances banks are not inclined to give out loans against another bank's CDs. You would be better off, in most cases, getting a loan from the same bank where you got your CD.

When you borrow against your CD, it makes more sense to go to the bank that issued you the CD. The bank which has issued the CD will be more comfortable lending you money because that bank knows you're credible - after all, should you not pay off your loan they can withhold your CD. However, if you need to borrow from different a bank, for whatever reason, you can still try to get a loan using your CD as collateral. It is not so much unwise as it is disadvantageous to you, generally speaking, and somewhat more difficult because most banks like these kinds of loans to be done within the same bank.

If you want to borrow against your CD for a loan from another bank, or have questions about borrowing against your CD, or how much you can barrow against your CD, be sure to consult with your bank and financial advisor who can help you navigate the often-confusing world of CDs and bank loans. The more information you have at your disposal, the more educated your choices and decisions will be. When it comes to your hard-earned money, you can never get too much good advice.

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