Understanding Home Equity
Home Equity is the current market value of your home minus the remaining mortgage balance. You can borrow up to 80% of the equity value
Home Equity Line Of Credit (HELOC)
Home Equity Line Of Credit, also known as HELOC has been a potential source of extra cash for a growing number of homeowners. But utilizing the equity in your home like any other financial decision should be done very cautiously. With a HELOC a certain amount of credit is made available for a limited time period (example: 5 or 10 years) followed by a repayment period. Most homeowners opt for HELOC if they need to borrow smaller amounts of money over a longer period of time. HELOC generally has lower interest rates.
Home Equity Loans
Most people confuse HELOC with Home Equity Loans, but they are two entirely different things. Unlike HELOC, home equity loans allow you to receive funds in a lump sum amount. Another good thing is that the interest rate and monthly payments are fixed, so you can plan your budget accordingly.
Remember that home equity loans are a better option if you need money for one large onetime expense and you want to know exactly how much money is needed.
What’s the difference?
Both home equity loans and HELOCS are treated as second mortgages, but HELOC should be considered more like a line of credit.
While HELOCS are more flexible than home equity loans, they can get tricky because the interest rate might change over time. The interest rate is tied to the primary lending rate; however it can increase if the variables change significantly.
Remember, higher the equity, lower the interest rate you will pay. The bottom line is that you should figure out whether or not you can make payments on both mortgages at the same time. Call us today for great mortgage advice and we can help you find the best home equity loans with great interest rates