Comparing Home Equity Loans & Lines of Credit
September 30, 2019
Home equity is the difference between the value of your home and the remainder that’s owed. When you make a large down payment or pay down your mortgage you’re building equity in your home. If you’ve purchased a home, you may be able to use a home equity loan or home equity line of credit (HELOC) to update your home. That is because home equity loans and lines of credit allow you to borrow against the equity in your home!
So what is a home equity loan or HELOC?
Different lenders may be willing to let you borrow 80-85% of the equity you have, depending on your financial past. Calculating your home’s equity is done by using your home’s current value minus any liens against it, like your mortgage. For example, if your home is worth $200,000 and you have $100,000 left on your mortgage you have $100,000 in home equity.
What is the difference between a Home Equity Loan and Line of Credit?
Both a home equity loan and a home equity line of credit (HELOC) allow you to borrow against your home’s value, as long as the value of the home is more than the current mortgage. Both provide access to large amounts of money if you’re approved, and can be easier to qualify for than other types of loans, since you’re securing the loan with your own home.
Home Equity Loan
- Lump sum upfront
- Fixed monthly payments
- Fixed rate
- Term ranges from 5 to 15 years typically
Home Equity Line of Credit
- Ability to borrow multiple times, up to a max amount
- Monthly payments may change
- Adjustable rate
A home equity loan would be most beneficial for someone who wants to keep making memories in the home they’re in and knows exactly how much they want to borrow. A line of credit would be most beneficial for someone who is looking for access to cash over a set amount of time. They aren’t sure exactly how much they’ll need but want to have the money ready as they need it. When making the decision between a home equity loan or a home equity line of credit, consider what you need money for and when. There are upsides to each of these options, depending on your needs as a homeowner and what will make the most sense for your situation
Both are great products if you are looking for a little extra cash! Your home can give you more money than just the change you may find in the couch cushions! Talk to someone at Greater Iowa Credit Union if you are interested in one of these or trying to decide between the 2! Click here for more information on these products!
- home equity loan
- home improvement