The main difference between unsecured and secured real estate lines of credit, comes down to how these loans are secured. Both loan types offer you a similar degree of flexibility and savings when compared to traditional financing. Evaluating the cost of both loan types can help you figure out which type of loan is right for your specific situation.

Your personal property provides security in the case secured lines of credit. Personal property can range from your primary residence to anything your business owns or some other form of collateral. With an unsecured line of credit, the loan isn’t secured by anything except for your lender’s estimation of your financial strength.

Now, why not just apply for a regular term mortgage to finance your next real-estate purchase?

With a term loan of any sort, a lump sum is given to you up front. No matter how much money you spend, you still need to make interest payments on the full loan amount. In addition, with term loans, you generally need to take a new loan out to finance each separate acquisition. A line of credit gives you far more flexibility. With a line of credit you only owe and pay interest on the amount you spend, and you don’t need to apply for a new loan with every new purchase of real-estate.

Both unsecured and secured real estate lines of credit offer flexibility and savings over standard term loans, but there are some differences in terms of costs.

A secured line of credit is taken out and is secured by some form of collateral, which offers your lender a degree of safety should you default. By mitigating risk, lenders can provide lower interest payments on secured lines and larger credit limits. Nevertheless, with a secured loan of any sort, credit line or term loan, your personal or businesses assets at risk.

With unsecured credit lines you the borrower don’t risk your personal property if you default.  However, lenders need to protect themselves in some way, and so unsecured lines offer lower credit limits and entail higher interest rates, Unsecured lines also come with far more stringent qualifications versus their secured counterparts.

With secured and unsecured real estate lines its important to evaluate the costs of each loan type. This can help you determine which type of loan is right for your specific situation.

A secured line of credit is an excellent idea if you are confident you can pay back whatever you spend, as you don’t want to lose your personal property in the course of expanding your business. Because secured lines offer lower interest payments and larger limits, it is probably best to employ a secured line of credit for making full offers on properties.

Unsecured lines may be more expensive, but they are an excellent way to reconcile differences between offers you want to make and the amount of cash you actually have on hand.  You should employ unsecured lines only when necessary due to the higher interest payments involved.

In both cases having access to a credit line allows you to quickly close deals on investment properties. With a credit line, you don’t need to wait on a lender to make a full offer, which can give you an edge over competing buyers who might need to wait on financing. In addition, credit lines can offer significant long-term savings over term loans because only pay back and pay interest on the amount that you spend.