fbpx
22121 Canyon Crest Dr Mission Viejo, CA 92692 +1 949-632-4347

HELOC vs. Home Equity Loan: How Do You Choose?

HELOC vs. Home Equity Loan: How Do You Choose?

Homeownership provides a potential source of borrowing power: Once you build up home equity, you can tap it as a great source of funds when you need money.

The equity — the difference between your house’s fair market value and the balance on your mortgage — can offer some of the lowest-cost lending available, through a home equity loan or what’s called a HELOC.

They’re similar, but here’s a look at the key differences, to help you decide which option is better for your situation.

Home equity loans: Access equity now

A home equity loan is a second mortgage that allows you to access real estate equity in big one chunk.

After the loan closing, the lender either cuts a check for a lump sum or wires funds to the borrower.

If you own a home worth $300,000, with a $200,000 balance on your first mortgage, you would potentially be able to tap $100,000 in equity.

Some home equity loans allow you to borrow up to the full 100% of your available equity, while others may cap the loan at 85%, 90% or 95%.

HELOC: Credit available now and later

A home equity line of credit, or HELOC, is different from a home equity loan in that you can borrow only what you need now but potentially take more later.

The credit line is similar to the available credit on a credit card. You pay interest only on the money you’re using.

In the example home with $100,000 in equity, a borrower could obtain the credit line in any amount up to $100,000.

Your loan payments would be based on the outstanding balances from all of your draws from the line.

Paying off a home equity loan or HELOC

With either a home equity loan or a HELOC, your repayment can be amortized, meaning scheduled out over a period of time and including interest and principal in your installments.

Under a 10-year amortized home equity loan for $100,000, your payments would gradually take your balance down to zero.

Be aware that home equity loans and HELOCs can come with balloon payments, where one large payoff amount may be due at the end.

In those situations, a home equity product with low monthly payments can suddenly turn into a very bad deal. Be sure to ask upfront if your loan or HELOC has a balloon payment — and avoid major regrets later on.

[…]  Click here to view original web page at finance.yahoo.com

Related articles

Can I Sell My Home If I'm Behind on My Mortgage?

Can I Sell My Home If I’m Behind on My Mortgage?

If you’re behind on your mortgage payments and don’t see your situation improving, you might be thinking the only way out of this mess is to sell your home. But can you? The short answer is yes—that is, so long as your lender hasn’t foreclosed on your home yet. The foreclosure process begins […]

Learn More
We're Hoping to Buy a Home in the Future - What Should I Know

We’re Hoping to Buy a Home in the Future – What Should I Know

Reader question: We’re hoping to buy a home in the future. A buddy of ours who’s a realtor said we should get pre qualified for a home mortgage. What does the pre approval process involve? How’s it different from pre qualification? . You are not alone in wondering this. Last […]

Learn More
Beazer counts on lender competition to constrain rising mortgage rates

Beazer counts on lender competition to constrain rising mortgage rates

Beazer Homes USA is working to encourage competition among its approved lenders in order to help control upward pressure on home prices and lending rates that could slow sales. “We realize that affordability is a major concern,” President and CEO Allan Merrill said during the company’s earnings call for its […]

Learn More

Leave a Reply

Your email address will not be published. Required fields are marked *