More and more homeowners are interested in using their home’s equity as an option for low-interest rate financing, but it can be confusing to figure out the best option. Home Equity Loans and Home Equity Lines of Credit (HELOC) are each types of Equity Loans. Should you get a Home Equity Loan or a HELOC? Both typically offer lower interest rates than unsecured loans or credit cards, and both can be an excellent solution to finance a variety of different things. So how do you decide which is the best option for you? Let’s take a look at the differences between HELOCs and Home Equitys.
What is an Equity Loan?
An equity loan is sometimes also called a second mortgage. It’s when you use your home as collateral and borrow against the equity in your home. It is a method of tapping into the equity of your home to obtain money for things like home repairs, renovations, or paying down high-interest debt like credit cards.
How much equity do I have in my home?
You can roughly figure out how much equity you have in your home by deducting the amount you owe on your mortgage from the value of your home. The difference you calculate is the amount of the equity you have, part of which can be used as collateral for an Equity Loan.
What is a Home Equity loan?
With a Home Equity Loan, you get the money you are borrowing in a lump sum payment, and you usually have a fixed monthly payment, term and interest rate for the life of the loan. This means you can expect to pay the same amount every month for the entire repayment period. If you need the dollars today and you know the amount you need, this may be a good option.
What is a HELOC?
With a HELOC, you can borrow or draw money multiple times from a specific available amount or line. You can borrow against it as you need it over time and you only repay the amount that you borrow. A lot of times HELOCs have adjustable interest rates that are based on the Prime rate, which is set by the Federal Reserve, because of that, the interest rate can move up or down. Your payment will be based on how much you borrowed and your variable interest rate, so the monthly payment may be hard to predict. If you are going to need some added cash over a time frame, but are not positive of the exact amount, this may be a good option as you only borrow what you need as you need it.
Still not sure how to choose the best option that’s right for your unique financial situation? It’s always important to consider how you will use the money. Will you need a specific amount of money? Are you getting ready to make home improvements and not sure how much they will cost? Our financial experts will be happy to help you navigate. Complete the form below, give us a call at (877) 820-2265 or stop by one of our convenient locations.