Home Equity Loan versus a Home Equity Line of Credit (HELOC) — two financial solutions that sound very similar yet have very different pros, cons, and considerations. So, how do you know which one is right for you? Allow us to give you the breakdown!
Home Equity Loans and HELOCs are both based on your home’s equity. If you’ve owned your home for a few years, you’ve likely built up some equity, and you can estimate this equity by subtracting the amount of money you owe on your mortgage from your property’s value. The amount you can borrow in a Home Equity Loan or a HELOC is dependent on this equity.
Because both solutions are based on your home’s equity, they often come with lower interest rates than other types of loans. This makes them great solutions for borrowing money, especially when you have big expenses on the horizon. Many people use these solutions for home renovations, education expenses, vacations, medical bills, credit card consolidation,and more.
The funds from a Home Equity Loan are distributed to you in a lump sum at a fixed interest rate. This means that you will receive the entirety of the funds at once and have the same payment each month. This fixed interest rate can be beneficial if market rates are on the rise, but keep in mind that the rate you receive typically depends on your credit score, payment history, and income. Currently, getting a home equity loan is a better option in this market than refinancing first mortgages.
Opening a HELOC gives you access to a flexible line of credit. Like a credit card, you can draw funds from this line as needed. Most of the time, the interest rate on a HELOC can fluctuate with the market, meaning your monthly payments aren’t set in stone. Some months, your payments might be higher or lower. The good news: you only pay interest on the amount of money you draw from the line. This way, you have more flexibility in repayment.
The best solution for you might not be the best solution for someone else. Our team at NorthPark Community Credit Union can help you determine whether a Home Equity Loan or HELOC (or an entirely different solution) is best for you! (You really can’t lose, especially since the minimal closing costs associated to the home loan is rolled into the overall loan.) Once you apply for the one that is best, our quick turnaround times will ensure you get the money you need without delay! Don’t hesitate to contact us. Look at our products yourself or contact us today!