HELOCs vs. Home Equity Loans: 3 Questions to Ask Yourself

Tap in Equity you have built in your home A great way to access cash to fund a home renovation project, consolidate existing debt or cover other upcoming expenses.

The two most popular options for doing this are – Home equity loan And Home Equity Lines of Credit (HELOCs) Interest rates in today’s economy can help. Because they are protected by the value of your home, allowing you to qualify good rate than an unsecured personal loan or credit card (although this makes it more imperative to keep up with the payments).

But if you’re considering using home equity today, which of these two borrowing options is best? If you have a cash flow goal in mind and how you’ll pay it off, answering a few specific questions can help you decide.

Find out the best home equity rates you can qualify for today here

HELOCs vs. Home Equity Loans: Ask 3 Questions

Before you decide between one HELOC or a home equity loanAsk yourself the following questions.

Do you want a fixed or variable interest rate?

When you borrow against your home equity, Types of interest rates You can influence your payment amount over time.

“Home equity loans are often based on a fixed rate while HELOCs are usually variable rates,” says Gregory Crofton, CFP, founder of Adap Tax Financial. “Compare rates. Lower is better.” However, given the possibility that interest rates could fall in such a distant future, “a variable rate loan will likely benefit from lower future rates at the cost of a fixed rate certainty,” adds Crofton.

So, if you are worried about payment Today’s high rate Over the life of your loan, a HELOC with a variable interest rate that typically moves alongside the federal interest rate may be better for you. Alternatively, a home equity loan with fixed interest can help you avoid potentially even higher rates and reliably budget for regular monthly payments over a period of time.

Start comparing home equity interest rates you may qualify for here!

Would you prefer a single or an open line of credit?

The ways you actually access the money you borrow from your home equity vary greatly Home equity loans and HELOCs.

When you’re approved for a home equity loan, you get the total loan amount in a single payment and can do whatever you want with it. When you get a HELOC, on the other hand, it’s like getting a new credit card. You will be approved for a fixed line of credit, from which you can draw as per your needs within a certain period of time (usually up to 10 years).

These different ways to get the money you borrow from home equity can affect how much you pay back over time. one with Home equity loan, you will repay your accrued interest on your specified repayment timeline. But with HELOC, you will pay interest on the amount actually borrowed. If you don’t use a portion of your line of credit, you don’t have to pay interest on that amount.

So knowing in advance whether you will get more use out of the money at once or by accessing part of it over time can be an influencing factor in the type of loan you choose.

What are you using the money for?

Anytime you borrow money, it’s a good idea to know what you’ll be using it for before you apply. Home equity loans may be better suited for certain uses than HELOCs and vice versa.

For example, if you are starting a home renovation for which you have already received a price quote and know that your loan can cover many costs, a lump sum home equity loan can be great. It is a great option for Debt consolidation Because you can use the money to pay off existing high-interest debt all at once.

On the other hand, HELOCs are great for ongoing home projects that can accumulate more expenses over time or if you plan to do several projects over the next few years. And when one is fully stocked emergency fund Always ideal for unexpected expenses, drawing on a HELOC you already have can be a way to cover emergencies if you don’t already have money saved up.

Good news for those using home equity home improvement Both home equity loans and HELOCs can have tax advantages. Interest you earn when you use the money to make qualified home improvements or renovations to your primary residence May be tax deductible.

Wondering if a home equity loan or HELOC might be right for you? Start comparing the best rates today.

Bottom line

Home equity loans and HELOCs can help homeowners access funds they may need for a wide range of purposes, including completing home renovations designed for them. Increase their equity further. And in today’s high interest rate environment, they offer relatively affordable alternatives to high-interest loan options.

To determine which is best for you, be sure to ask yourself key questions about the type of interest rate you want, how you’ll get the money, and what you’ll use it for. Then you can start finding the top rates you’ll qualify for today.