HELOCS & HELOAN Are They Right For You?

What Is A HELOC?

• A home equity line of credit (HELOC) and a home equity loan are both forms of second mortgages that allow homeowners to borrow against the equity they have built up in their homes. However, there are some key differences between the two that are important to understand before deciding which one is right for you.

How Much Equity & What Is Equity?

• First, let’s define what equity is. Equity is the difference between the value of your home and the amount you still owe on your mortgage. For example, if your home is worth $250,000 and you owe $150,000 on your mortgage, then you have $100,000 in equity. This equity can be used as collateral to secure a loan or line of credit.

HELOAN Difference

• A home equity loan is a lump sum loan that is repaid over a fixed term, usually 5-15 years – however we even have 30 year second mortgages and 15/40 versions as well (due in 15 years however the amortization is over 40 years).  The loan is issued in one lump sum, and the borrower makes fixed monthly payments until the loan is paid off. Because the loan is issued all at once, the borrower knows exactly how much they will be borrowing and what their monthly payments will be. This makes home equity loans a good option for people who need a specific amount of money for a specific purpose, such as home renovations or college tuition.

HELOC Difference

• A home equity line of credit, on the other hand, is a line of credit that is extended to the borrower based on the equity they have in their home. The borrower can draw on this line of credit as needed, up to a predetermined limit, and only pay interest on the amount they have borrowed. This makes HELOCs a good option for people who need access to a flexible source of funds, such as for managing unexpected expenses or for investing in a business.
• One of the key differences between a home equity loan and a HELOC is the interest rate. Home equity loans typically have fixed interest rates, which means that the rate will remain the same throughout the life of the loan. This makes it easy for borrowers to budget for their monthly payments, since they will always be the same.

Variable Interest Rates

• HELOCs, on the other hand, have variable interest rates, which means that the rate can fluctuate over time. This can make it more difficult to budget for your monthly payments, since they may increase or decrease depending on changes in the market. However, variable interest rates are often lower than fixed interest rates, so borrowers who are able to take advantage of these lower rates can save money on interest.

Accessing Your Funds

• Another key difference between a home equity loan and a HELOC is the way that the borrower accesses the funds. With a home equity loan, the borrower receives the funds all at once in a lump sum. This means that the borrower must have a specific plan for how they will use the funds, and they must use the funds for that specific purpose.
• With a HELOC, on the other hand, the borrower can access the funds as needed, up to the predetermined limit. This means that the borrower can use the funds for a variety of purposes, and they can withdraw the funds as needed to cover expenses. This makes HELOCs a more flexible option than home equity loans.

How To Repay The Loan

• Finally, a home equity loan and a HELOC also differ in the way that they are repaid. With a home equity loan, the borrower makes fixed monthly payments that include both the principal and the interest. This means that the borrower will pay off the loan over a specific period of time, and the loan will be completely paid off at the end of that period.
• With a HELOC, you can choose to make either interest-only payments or payments that include both the principal and the interest. If you make interest-only payments, then the loan will not be paid off at the end of the term and what typically happens is the balance that is outstanding will then be amortized over the final, say 10 years of the term.

With our many different options for HELOCS and HELOANS the best thing to do is reach out and talk to Bill Halick and his team of mortgage professionals to understand what is the best option for your situation.

To learn more about HELOAN & HELOCS Loans call (800) 254-3150 Aceland today and ask to speak with one of our knowledgeable mortgage professionals.  We look forward to serving you!

You can also visit our contact page here https://www.acelandmortgage.com/contact-us/ or use the online Chat to get in touch!