An interest only home equity loan provides you with the option of paying only the interest on the loan for the first number of years. You can choose the term for the interest only portion of the mortgage, which can be between 1 and 7 years. The lenders readily agree to this type of loan because they are making money off the loan through your interest and since you are not making any payments on the principal, they are getting interest each month.

* Advantages of Interest-Only Home Equity Loans: If borrowing a small amount of money and selecting a short interest-only period, these loans may not present future risks. In some instances, homeowners who intend on selling their property will apply for an interest-only home equity loan, use the money to improve the property, which boosts the value, and then re-sell. In this instance, interest-only home equity loans are beneficial.

* Disadvantages of Interest-Only Home Equity Loans: Many homeowners are attracted to interest-only home equity loans because of low monthly payments. Yet, it is vital to consider the pros and cons before selecting this option.

Eventually, homeowners will have to begin paying the principle balance. If opting for an interest-only home equity loan option, its better to select a shorter period, perhaps one or two years. If you need money quickly, at a low interest rate an equity loan may be your best or only option. One of the best parts about an equity loan is that you can typically get a larger amount of money, for a low interest rate with incredibly low monthly payments. This is because your payments on an equity line are based on interest rather than on the principal of the loan you have borrowed. This is not to say you should squander the proceeds from your equity loan, but if you need money quickly and you don't have a ton of budget flexibility to make large payments towards your loan an equity line may be just the ticket.