Choosing a Home Equity Loan or HELOC: What the Professionals Say to Look For

If you want to tap into your homemade value, you have several options. is the most common of Home equity loan And Home Equity Lines of Credit (HELOCs).

A Home equity loan A type of loan that gives you a lump sum of money, which you pay back over a period of time at a fixed interest rate. A HELOC A line of credit allows you to borrow money up to a pre-approved limit, usually at a variable interest rate, and repay the amount you actually borrow over time.

There are many different home equity loans and HELOCs on the market, and choosing between them can seem overwhelming. To help you find the best product for you, we asked real estate professionals the most important factors to consider

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Choosing a Home Equity Loan or HELOC: What the Professionals Say to Look For

Here’s what experts keep in mind when evaluating your home equity borrowing options:

How you plan to use the funds

The first step is to determine whether Home equity loan or a HELOC Good for how you want to use the borrowed money.

“The best type of loan for you will depend on your personal situation and needs,” says Mike Cue, real estate agent and owner of Good As Sold Home Buyers. “If you know how much money you need and when you need it, a home equity loan can be a good option. You get the money up front, and you have a fixed interest rate for the life of the loan. Knowing exactly how much you will owe each month gives you Can give peace of mind.”

On the other hand, Qiu says, “If you’re not sure how much money you need or when you’ll need it, a HELOC can be a good choice. You can borrow as much or as little as you need, and you can make payments as often as you like. It gives you more flexibility, but it also means you have to be more disciplined about managing your debt.”

Check out your home equity loan options here.

Loan terms

Once you’ve decided whether to get a home equity loan or HELOC, review offers from multiple lenders and compare their terms.

For example, Denny Suppley, realtor and co-founder of SparkRental, recommends looking at the following loan terms (among others) when choosing a HELOC:

• Starting Rate: “Sometimes HELOCs come with a low introductory rate, which jumps upward after that initial introductory period,” Suppli says. “Make sure you understand exactly how long that introductory period lasts and how the rate will be calculated after it ends.”
• Drawing Duration: “HELOCs typically come with two phases: a draw phase (where you can draw on the line of credit or make payments as you wish) and a repayment period (when you have to pay off your balance like a fixed-installment loan or mortgage). How long is the draw period?” “Check that’s permanent and consider looking for HELOCs with longer draw periods,” Suppli says.
• Minimum lift: “Many HELOCs require you to take out a certain amount upfront, but that can defeat the purpose of flexibility and a revolving line of credit,” Suppli says. “You can pay interest on borrowed money that you don’t need right away.”

For both home equity loans and HELOCs, review terms such as:

• Payment Terms: “Some loans require you to make immediate payments for both principal and interest, while other options offer interest-only payments initially,” says Theresa Raymond, principal broker and owner of TN Smoky Mtn Realty. “You need to determine which repayment structure will best suit your preferences and financial situation.”
• Prepayment penalty: “For both HELOCs and home equity loans, check to see if the lender charges a prepayment penalty and, if so, after how long,” Suppli says. “If you have to go for work, for example, and sell your home ahead of schedule, the lender could hit you with a nasty penalty.”

Check today’s top home equity rates here.

total cost

Interest rates aren’t the only thing that affects how much you pay to borrow against your home equity. You will also pay Closing costs and, potentially, other fees, such as annual fees (for HELOCs).

“Be sure to compare the total cost of any HELOC or home equity loan when you’re shopping,” Suppli says. “Add up all fees and projected life-of-loan interest to get a complete idea of ​​the cost of each option.”

Start your home equity product search by checking out the top offers you can qualify for here

Company rating

Finally, look for a lender with a solid reputation and track record when you’re comparing offers. Borrowing against your home equity is a significant financial undertaking that can affect you for years to come, and you want to work with a company that is transparent and responsive.

“Research the lender’s reputation and the quality of their customer service and support,” says Raymond “Try to find a lender who provides excellent customer support, excellent resources, and responds sincerely to concerns and inquiries.”

Bottom line

As with any financial product, it’s essential to do your research and consider your overall budget and goals when deciding which one to choose. Home equity loan or HELOC best for you By identifying your needs, comparing loan terms and total costs, and reviewing company ratings, you can find products and lenders that give you the best deal for your needs.