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Tapping into the equity that you have built up in your home is a great way to access cash to help finance a home renovation project, consolidate existing debt, or cover other upcoming expenses.
Two of the most popular options for doing this — mortgage loans And home equity lines of credit (HELOCs) can also help you get solid interest rates in the current economy. That’s because they’re secured by the value of your home, making you eligible better rates than unsecured personal loans or credit cards (while also making it even more important to keep track of payments).
But if you’re considering using home equity today, which of these two loan options is best? If you have a goal in mind with the money and how you will pay it back, the answers you give to some specific questions can help you decide.
Find out here the best equity rates you can qualify for today.
HELOCs vs. mortgage loans: 3 questions to ask
Before choosing between a HELOC or a home equity loanask yourself the following questions.
Do you want a fixed or variable interest rate?
If you borrow from your own equity, the type of interest you get can affect how much you pay over time.
“Home equity loans are often based on a fixed interest rate, while HELOCs typically have a variable interest rate,” said Gregory Crofton, CFP, founder of Adap Tax Financial. “Compare rates. Lower is better.” However, given the possibility that interest rates could fall in the not-too-distant future, “a floating-rate loan is likely to benefit from lower future rates at the expense of the security of a fixed rate,” Crofton adds.
So if you are worried about paying high rates today over the life of your loan, a variable-rate HELOC that generally moves alongside federal interest rates may be better for you. Otherwise, a fixed rate home equity loan can help you avoid potentially even higher rates and set aside a reliable budget for a regular monthly payment over a fixed period of time.
Start here comparing the home equity interest rates you could qualify for!
Would you rather have a fixed amount or an outstanding credit line?
The way you actually access the money you borrow from your home equity varies widely between mortgage loans and HELOCs.
When you are approved for a home equity loan, you receive the total amount borrowed in a lump sum and can do whatever you want with it. When you get a HELOC, on the other hand, it’s similar to getting a new credit card. You are approved for a certain credit limit, from which you can draw as needed over a certain period (usually up to 10 years).
These different ways of receiving the money you borrow from home equity can also affect how much you pay back over time. Immediately home equity loanyou simply pay the interest that you accrue over your fixed repayment term. But with one HELOC, you only owe interest on the amount you actually borrow. If you don’t use part of your credit limit, you don’t have to pay interest on that amount.
So knowing upfront whether you’ll get more use out of the money all at once or by accessing it over time can be an influencing factor in the type of loan you choose.
What are you using the money for?
Any time you borrow money, it’s good to know what you’ll be using it for before applying. Home equity loans may be better suited for certain applications than a HELOC, and vice versa.
For example, a lump sum home equity loan can be great if you are starting a home renovation for which you have already received a quote and know that your loan can cover much of the cost. It’s also a great option for debt consolidation because you can use the money to pay off existing high-interest debt in one go.
HELOCs, on the other hand, are great for ongoing home projects that can add up to more costs over time or if you plan on doing multiple projects over the next few years. And while a fully stocked emergency fund Always ideal for unexpected expenses, using a HELOC you already own can be a way to cover emergencies that arise when you haven’t saved the money yet.
The good news for those who use surplus value for home improvements is that both mortgages and HELOCs can have tax benefits. If you use the money for qualifying renovations or alterations to your primary residence, you will accrue interest may be tax deductible.
Do you think a home equity loan or HELOC could be for you? Start comparing today’s best rates now.
it comes down to
Home equity loans and HELOCs can help homeowners access the funds they need for a wide variety of purposes, including completing home renovations designed to to further increase their equity. And in today’s high interest rate environment, they offer relatively affordable alternatives to higher interest loan options.
To decide which is best for you, ask yourself important questions about the type of interest rate you want, how you will receive the money and what you will use it for. Then you can start finding top rates you qualify for today.
