There are basically two types of home equity loans: a home equity loan (HEL) or a home equity line of credit (HELOC).
There are basically two types of home equity loans: a home equity loan (HEL) or a home equity line of credit (HELOC). Since the debt is secured by your home, the interest rate is typically less than that of a credit card or personal loan. Also, the interest paid on the loan may be tax deductible. (Always check with your tax or financial advisor before making any tax-related decisions).
Home Equity Loan (HEL)
A home equity loan, also referred to as a second mortgage, is best used in situations where you intend to use the funds for a specific purpose, like home improvements or a car purchase. The interest rate and the monthly payments are fixed. These get paid back in installments over a fixed period of time, typically 5-15 years. While the time to repay a loan is shorter than that of a traditional mortgage, borrowers like the certainty of having a fixed rate and fixed monthly payments.
Home Equity Line of Credit (HELOC)
A home equity line of credit is a revolving line of credit that allows you to access the funds as you need, instead of all at once. The interest rate is variable and in most cases tied to prime. The rate for which you qualify is usually based on your creditworthiness and your ability to repay the loan.
Advantages and disadvantages of using each type of loan
Knowing when to use which type of loan depends on your specific circumstances. If you have a long term remodeling project which requires cash installments over time, then a line of credit makes sense. If your home needs a major upgrade and you are making one large payment, then the stability of a home equity loan may be a better choice.
Advantages of HELs and HELOC
HEL (Home Equity Loan)
HELOC (Home Equity Line of Credit
Fixed interest rate. Although you pay interest on the entire borrowed amount, your rate is locked in if rates swing upward.
Variable interest rate. You pay interest on the amount you access from your line of credit, rather than the entire loan amount.
Attractive interest rates (lower than credit cards or personal loans).
Attractive interest rates (lower than credit cards or personal loans).
Loan interest may be tax-deductible.
Loan interest may be tax-deductible.
There is one lump sum of money borrowed.
Access to money as you need it.
Set monthly payments make it easier to estimate your expenses.
As you borrow more, the minimum repayment will increase. However, interest-only repayment options are available.
Can link into a relationship banking product to receive rate discounts, free services, or added benefits.
Can link into a relationship banking product to receive rate discounts, free services, or added benefits.
Disadvantages of HELs and HELOCs
HEL (Home Equity Loan)
HELOC (Home Equity Line of Credit
Required to borrow the entire amount upfront whether used or not.
Knowing money is available at any time can be tempting.
Fixed payments can take up to 15 years to repay
Variable interest rate could adjust upward.
There are usually fees that add costs to the loan amount.
There are usually fees that add costs to the loan amount.
Repayment of interest and principal begins as soon as you receive the money.
Interest-only repayment options are available from most lenders.
If you cannot repay or refinance the loan, then you may be forced to sell or lose your home.
If you cannot repay or refinance the loan, then you may be forced to sell or lose your home.
While the advantages for both types of loans may sound appealing, carefully evaluate whether the benefits each has to offer is worth incurring the additional debt. Compare home equity rates.
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to bank transparency and the climate crisis. Since co-founding BestCashCow in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.
Many homeowners like a fixed rate home equity loan, especially when rates are low, because they can plan their budgets better and not be surprised by higher payments due to their loan adjusting upward.
Home Equity loans are available through our affiliate Achieve Loans (NMLS ID #1810501). Equal Housing Opportunity. Offers may vary and loan requests are subject to eligibility requirements, application review, loan amount, loan term, and lender approval. Product terms are subject to change at any time. Offers are a line of credit. Loans are not available to residents of all states and available loan terms/fees may vary by state where offered. Line amounts are between $15,000 and $300,000 and are assigned based on product type, debt-to-income ratio, and combined loan-to-value ratio. 10, 15, 20, and 30-year terms available. Minimum 600 credit score applies for debt consolidation requests (20 and 30 year terms require a minimum credit score of 640), minimum 700 applies for cash out requests. Other terms, conditions and restrictions apply. Fixed rate APRs range from 6.74% - 14.75% and are assigned based on underwriting requirements; offer APRs may include a discount for automatic payment enrollment (autopay enrollment is not a condition of loan approval). All terms have a 5-year draw period with the remaining term being a no draw period. Payments are fully amortized during each period and determined on the outstanding principal balance each month and can fluctuate during the draw period. Closing fees range from $750 to $6,685, depending on line amount and state law requirements and typically include origination (3.5% of line amount) and underwriting ($725) fees if allowed by law. Property must be owner-occupied. Combined loan-to-value ratio may not exceed 80% (20 and 30 year debt consolidation requests may not exceed 75%), including the new loan request. Property insurance is required and flood insurance may be required if the subject property is located in a flood zone. You must pledge your home as collateral. Equal Housing Opportunity. Contact Achieve Loans for further details.
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Home Equity Loans & Refinance – Cash out
Customized rate quote with no impact to credit
Low Rates, Quick Approvals, Wide Range of Products
Please note that the interest rates offered are subject to change based on market conditions and borrower eligibility. The pricing and rate provided are accurate as of the specified date. It is important to be aware that the minimum loan amount for any loan program is $50,000. The specific amount and terms of the credit offer will be determined based on underwriting approval and guidelines, which include factors such as your credit history, your ability to make payments, and the available equity in your home.
To qualify for this offer, you must meet the required criteria and demonstrate creditworthiness. Additionally, providing up to two years of income verification may be necessary. The severity of your credit may also impact the required down payment. It is crucial to understand that the lender reserves the right to cancel this offer if the provided information cannot be verified.
Please note that all bankruptcies must be discharged in order to be eligible. This offer is nontransferable and is specifically available for single-family residences or owner-occupied condominiums. Please be aware that mobile homes and cooperatives are not included in this offer. It is important to note that the lender must hold a valid first lien position, and property hazard insurance is a requirement.
These are some key details to consider when evaluating this offer. It is essential to thoroughly review the terms and conditions and seek clarification from the lender regarding any specific questions or concerns you may have before proceeding with the application process.
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Owning is a division of Guaranteed Rate, Inc, NMLS #2611 Headquarters: 3940 N Ravenswood, Chicago IL 60613. A Guaranteed Rate HELOC is secured with your home as collateral, whereas personal loans and credit cards are not. To check the rates and terms you qualify for, we will conduct a soft credit pull that will not affect your credit score. However, if you continue and submit an application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit. Approval may be granted in five minutes but is ultimately subject to verification of income and employment, as well as verification that your property is in at least average condition with a property condition report. Five business day funding timeline assumes closing the loan with our remote online notary. Funding timelines may be longer for loans secured by properties located in counties that do not permit recording of e-signatures or that otherwise require an in-person closing. Guaranteed Rate Home Equity Line is an open-end product where the full loan amount (minus lender, broker, third party, and government fees, as applicable) will be 100% drawn at the time of origination. The initial amount funded at origination will be based on a fixed rate; however, this product contains an additional draw feature. As the borrower repays the balance on the line, the borrower may make additional draws during the draw period. If the borrower elects to make an additional draw, the interest rate for that draw will be set as of the date of the draw and will be based on an Index, which is the Prime Rate published in the Wall Street Journal for the calendar month preceding the date of the additional draw, plus a fixed margin. Accordingly, the fixed rate for any additional draw may be higher than the fixed rate for the initial draw.
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August 17, 2013
Many homeowners like a fixed rate home equity loan, especially when rates are low, because they can plan their budgets better and not be surprised by higher payments due to their loan adjusting upward.
Is this review helpful? Yes:7 / No: 3
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