Whether you need money for emergency home repair or make an update to the home, a home equity line of credit (HELOC) or a home equity loan may be right for you.
Like your standard mortgage, both HELOCs and home equity loans come with their share of closing costs and fees that must be taken into consideration.
HELOC: Home Equity Line Of Credit
With a HELOC, you borrow what you need, when you need it. This form of loan acts like a credit card that uses your home equity as “cash.” To qualify, you must have good credit and have built up enough equity. If approved, you can borrow money as you need it, up to your loan limit, using a check or credit card linked to the account.
You are required to pay the amount back at the end of the loan period. Interest rates are variable, so do not expect the same payment each month.
Home Equity Loan
Home equity loans are what is known as a second mortgage. This loan uses your home as collateral, giving you a fixed amount of money to work with. Before you apply for a home equity loan, you must know how much you need to borrow. That way, you can budget and take fees and other monthly payments into consideration.
Avoid using all of your home equity at once when applying for a home equity loan. Interest rates are fixed so that you can expect the same payments each month. You will pay back the loan over 5-30 years.
Only Use These Options For Home Or Emergencies
HELOCs and home equity loans should only be used for the home or emergencies. Never use them for purchases like cars or vacations, as these will remove vital funds for when you need them the most.
Always discuss new loans with your lender and trusted financial advisor before taking out a new loan using your home as collateral.