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.
Available APRs range from 6.35% - 14.90%*, which includes the payment of a higher origination fee in exchange for a reduced interest rate, which is not available to all applicants or in all states.(the advertised APR includes a combined 0.25% discount for opting into a credit union membership (0%) and enrolling in autopay (0.25%) as well as payment of higher origination fee in exchange for a reduced rate, which is not available to all applicants or in all states). The lowest APRs are only available to the most qualified applicants, depending on credit profile and the state where the property is located, and those who also select five year loan terms; APRs will be higher for other applicants and those who select longer loan terms. Rates change frequently so your exact APR will depend on the date you apply. APRs for home equity lines of credit do not include costs other than interest. You will be responsible for an origination fee of up to 4.99% of your initial draw, depending on the state in which your property is located and your credit profile. You may also be responsible for paying the costs of valuation if an AVM is not available for your property ($180), manual notarization if your county doesn’t permit eNotary ($380), and recording fees ($0 - $315) and recording taxes, which vary by state and county ($0-$1,400 per one hundred thousand dollars borrowed). Property insurance is required as a condition of the loan and flood insurance may be required if your property is located in a flood zone.
Flexible terms, borrow $15K-$750K, redraw up to 100%
Use to consolidate debt or finance your next home project
Available APRs range from 6.60% - 14.15*, which includes the payment of a higher origination fee in exchange for a reduced interest rate, which is not available to all applicants or in all states.(The advertised APR includes enrolling in autopay (0.25%) as well as payment of higher origination fee in exchange for a reduced rate, which is not available to all applicants or in all states). The lowest APRs are only available to the most qualified applicants, depending on credit profile and the state where the property is located, and those who also select five year loan terms; APRs will be higher for other applicants and those who select longer loan terms. Rates change frequently so your exact APR will depend on the date you apply. APRs for home equity lines of credit do not include costs other than interest. You will be responsible for an origination fee of up to 4.99% of your initial draw, depending on the state in which your property is located and your credit profile. You may also be responsible for paying the costs of valuation if an AVM is not available for your property ($180), manual notarization if your county doesn’t permit eNotary ($380), and recording fees ($0 - $315) and recording taxes, which vary by state and county ($0-$1,400 per one hundred thousand dollars borrowed). Property insurance is required as a condition of the loan and flood insurance may be required if your property is located in a flood zone. Consumers wishing to file a complaint against a mortgage company or a licensed residential mortgage loan originator should complete and send a complaint form to the Texas department of savings and mortgage lending, 2601 North Lamar, Suite 201, Austin, Texas 78705. Complaint forms and instructions may be obtained from the department’s website at www.sml.texas.gov. The department maintains a recovery fund to make payments of certain actual out of pocket damages sustained by borrowers caused by acts of licensed mortgage company.
Conditions… Variable APR of Prime minus 1.01% in all states. Min loan amount $10,000. Max loan amount $200,000. 30-year term. Annual fee waived for the first year. See conditions for guarantee at thirdfederal.com.
Third Federal rate are typically 20% lower than other leaders
Guaranteed Lowest Rate
No closing costs, prepayment penalties, or minimum draw requirements
This is not a pre-approval or an offer of credit. This is an invitation to apply, and in order to qualify for a loan you must meet our credit and other requirements. Applicants are required to provide a current and valid completed application, proof of income, mortgage statement, property hazard insurance, and a photo ID. Approval is contingent upon a full application and is not guaranteed. We will not extend credit if we cannot verify that your credit profile, debt, income, identity, property value, home equity, and title meet our underwriting criteria. Loan terms, rates, and fees are subject to change. Rates and terms may vary and depend on credit score, CLTV (combined loan-to-value), property type, occupancy and loan terms. These results are for informational purposes only.
Farmers Bank of Kansas City’s Home Equity Line of Credit (HELOC) has a 20-year repayment term. The first 10 years will be the Draw period with the interest rate based on the Prime Rate published by the Wall Street Journal plus a margin and allows for an interest only payment to be made during the draw period. If a balance is owed after the draw period concludes, the interest rate will become fixed for the remaining 10 years and will be based upon the Prime Rate published by the Wall Street Journal plus a margin. The HELOC interest rate will not go below 5% or higher than 18%. The minimum line amount offered is $25,000 and the maximum line amount offered is $350,000. The minimum draw amount required is $25,000 or half of the maximum line amount, whichever is greater. A HELOC requires you to pledge your home as collateral, and you could lose your home if you fail to repay. Offers, rates and fees are subject to change without notice. Repayment begins approximately 30 calendar days after funding.
Farmers Bank of Kansas City also offers a fixed rate Home Equity Loan (HELOAN). Rates vary and depend on credit score, CLTV (combined loan-to-value), property type, occupancy and loan terms.
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January 12, 2011
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Is this review helpful? Yes:15 / No: 4
jamie
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:11 / No: 3
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