Continuouslyand rising The reverberations are reverberating across the economy and Americans are feeling the pinch. And with a possibility On the horizon, many are looking for ways to pay off high-interest credit cards and other debt.
If you are a home owner, you can achieve both objectives by adopting oneor . Both of these types of second mortgages use your home equity as collateral while allowing you to access the money you need. Home equity is the difference between your mortgage balance and the current market value of your home.
A HELOC is a revolving line of creditSimilar to a credit card. You can borrow as often as you like, as little or as much as you need up to your credit limit. HELOC lenders may allow you to borrow 60% to 85% of your home equity. They usually come with variable rates and repayment terms for 30 years. Your repayment term includes a draw period, often 10 years, during which you can withdraw money. Once the draw period is over, you enter into a repayment term, usually lasting 20 years.
A home equity loan enables you to borrow a lump sum of money that you must pay back over a fixed repayment period, usually between five and 30 years. Generally, interest rates are fixed and you can borrow up to 80% to 85% of your home equity. In other words, if you have $100,000 of equity in your home, you may qualify for a home equity loan of $80,000 to $85,000.
The differences – and benefits – between both options are unique to each homeowner. Here you can explore both options to decide which one is better for you.
When a HELOC might be better
Because a HELOC uses your home as collateral, make sure you understand the repayment plan before signing the contract. That means you could lose your home if you fail to make the HELOC repayments as agreed. When you investigate HELOCs, it’s helpful to understand situations where a. Here are three situations in which it might be your best option:
- When you need ongoing access to funds: HELOCs allow you to borrow as much as you need over and over again, up to your approved limit. Remember, you only pay interest on the amount you withdraw, not your credit limit. There is flexibility to borrow as per requirement Especially if you need access to money for an extended period of time.
- When you want a line of credit to cover future expenses: You may need cash now for emergency medical bills, but you know your child will need additional funds in a few years to cover college tuition and related expenses. Because you don’t have to take out the entire borrowing amount right away—and pay all that interest—a HELOC can provide a more cost-effective option to cover your immediate and future expenses. However, you should exercise discipline when spending to avoid maxing out your borrowing limit, which could prevent you from accessing money in the future.
- You want low interest rates and cheap closing costs: As a general rule, HELOCs have lower interest rates and Than home equity loans. These costs include fees for preparing your application, title search, and attorney documents. Not all HELOCs charge closing costs, but those that do typically charge between 2% and 5% of the loan amount.
You can easily check your local HELOC offers online today
When a home equity loan can be good
If a HELOC doesn’t meet your needs, consider the benefits of a home equity loan Here are three situations where a home equity loan can be more advantageous than a HELOC:
- When you want a fixed interest rate: Unlike HELOCs, which typically come with variable interest rates, home equity loans offer a fixed interest rate. A home equity loan can be a good option if you want a monthly payment that stays the same and is protected from potential interest rate increases.
- When paying a significant expense: The accessibility of a significant one-time loan amount makes a home equity loan a good option to cover a significant one-time expense. Borrowers typically use home equity loans to finance home improvement projects, cover medical bills, and pay off credit card debt.
- When you want an installment loan: A home equity loan is a type of installment loan, like a personal or auto loan. You may prefer the predictability of an installment loan where you make regular payments for the same amount until your loan is paid off in full.
Learn more about your home equity loan options here now.
Home equity loans and HELOCs share many of the same benefits, such as the ability to borrow against your home equity. Similarly, you may be eligible for a tax deduction if you use funds from oneor To build or significantly improve your home.
If you’re deciding between these two borrowing options, the decision may come down to which one best meets your unique financial needs. Before you agree to a home equity loan or HELOC, compare the terms of each to see which is most beneficial for your situation. Start exploring your options online now to discover which one is best for you