If you are planning to take a secured 2nd mortgage loan against your home, then take care not to over commit yourself. Also, if you are refinancing because you have overcommitted yourself in the past, then you know that your also going to be tempted to max out your new facility with things you can do without. So make sure it's a term facility, with a fixed rate and a fixed repayment amount, which you know that you can meet. Additionally please choose only a zero redraw facility, because you just know that you need that much help to discipline yourself with your house at risk.

Compare Rates Between Home Equity Loans And Line Of Credit 

In this exercise you are not comparing apples with apples as one facility has a fixed amount of interest to repay at the start, whereas the other is an open ended position.  It is quite difficult to directly compare interest rates between what are quite different products even though they are both based on your home’s equity level.

You can only compare like products accurately, however you can compare what you may pay back assuming you don’t redraw. So the method you would use is to plan out how you expect to use a line of credit facility. You will need a spread sheet with a present value calculation, but if you include an estimate of your balance at every monthly period you will then see the effect.

The difference is the effect of paying a higher rate but having a lower balance earlier in the loan term, because you can apply funds to the account on a temporary basis. With a fixed term fixed rate facility you only pay the monthly instalment. However with a line of credit facility you can delay paying another expense (one that’s not interest rate affected) for a period and get the effect of that reduction in interest cost.
A key difference would be if you have the ability to have you wages paid into this facility as you probably always keep a small residual in hand that would be reducing your interest costs overall.

Fixed home equity loans - Which is best?
A fixed home equity loan is for homeowners using the equity in their home, but structured so that the term of the loan is fixed and so also is the repayment schedule. With this type of loan, a homeowner will know what their commitment will be in the future. Read more...