Here’s the thing—nowadays, you can make your house work for you. That is, if you’ve been diligently paying for your mortgage and your home value is more than what you owe, you can tap into that equity. Sounds like a good deal, right?
You can do this through two main routes: a home equity loan or a home equity line of credit (HELOC). But hold your horses—we don’t want you jump-starting any loans without the 101. So, let’s deep dive into these two alternatives and see, shall we?
Let’s Talk Home Equity Loans, Shall We?
A home equity loan works a bit like a second mortgage. Here, the bank will lend you a nice lump sum based on the equity you’ve managed to build up in your home. You’re then free to use this cash as you wish—call it a little renovation, pay some medical bills, or even clear out some debt.
A Peek Into How Home Equity Loans Work
So you decide you want to apply for a home equity loan. You can typically borrow up to 85% of the available equity in your home. How can you compute for this? Take cue from Dora and we’ll go exploring—specifically, into your property’s most recent appraised value and how much of your mortgage you’ve already paid.
These loans can come with quite a duration, sometimes up to 30 years, and require monthly payments on both the principal and interest. Think you’re up for that commitment? If your answer is yes and you think your bank account can handle it, then go ahead and take the plunge!
Moving On To HELOCs—What’s The Story?
A Home Equity Line of Credit—or what cool kids like us call HELOC—works a bit differently. Instead of a one-time payout, a HELOC provides a credit line that you can draw from during a set borrowing period. It’s somewhat similar to a credit card; as you repay your balance, your available credit gets replenished. Imagine it as a revolving door of opportunity, always there for you when you need it.
And Just How Do HELOCs Work?
Pretty simple. Just like a home equity loan, banks allow borrowing of up to an estimated 85% of your home’s existing equity. However, keep in mind that you only pay interest on the money you actually withdraw. So don’t get too excited, withdraw the whole amount, and then wonder why your monthly payments are soaring high!
HELOCs Vs. Home Equity Loans: The Showdown
Okay, so both sound pretty good. But you may be wondering—how do these two differ? Sit tight, we’ve outlined the key differences here based on loan amounts and interest rates.
If you’re someone who loves stability and predictability (I mean, who doesn’t?), a home equity loan may be your jam.
On the other hand, if you value flexibility and don’t mind a bit of unpredictability, a HELOC might be your cup of tea.
Looking To Get A Home Equity Loan Or HELOC? Here’s What To Do
Before you go ahead and apply, it’s critical to do your homework. Yep, just like in school! This means researching lenders, understanding their terms and conditions, and confirming you meet their criteria.
The HELOC Vs. Home Equity Loan Debate: The Benefits
Now if you’re reading this and still can’t decide which one is for you, here’s a recap of the benefits of a HELOC versus a home equity loan.
HELOCs give you the flexibility to borrow only when you need the funds. In contrast, home equity loans give you a fixed sum upfront with fixed monthly payments. Which one sounds ideal to you entirely depends on your goals and needs.
More Questions? Check Out Our FAQs
Which is better, a HELOC or a home equity loan?
Now isn’t that the million-dollar question? The answer is, well, it depends. Both have their pros and cons, and your best option depends entirely on your individual needs.
Can you convert a HELOC to a home equity loan?
This surely sounds like an episode of “Pimp My Ride,” but yes, you actually might be able to make that swap in specific cases!
How many HELOCs and home equity loans can I have?
If you’re feeling ambitious and wondering how many HELOCs or home equity loans you can have, there is technically no limit. But don’t push your luck. Balance is key.
In Summary…
Deciding between a HELOC and a home equity loan can be as tough as picking your favorite child. Whichever you choose, remember both are formidable ways to leverage the hard-earned equity built in your home. The important thing is knowing which one best fulfills your financial goals.
And remember, Rome wasn’t built in a day. Don’t rush the decision—think things over, showcase your detective skills by thoroughly doing some research, and hopefully, you’ll find your perfect match!