THE BASICS: Home equity is the difference between your home’s market value and the outstanding balance on your mortgage.

Tapping into this equity with a HELOC or HELOAN can provide funds for a variety of purposes, including renovations, debt consolidation, or major purchases.

A Home Equity Line of Credit (HELOC) is a revolving line of credit that allows you to borrow against your home’s equity as needed, up to a certain limit. Think of it as a credit card secured by your house.

Key Features of a HELOC:

• Flexible Access to Funds: Borrow what you need, when you need it, during the draw period.
• Variable Interest Rates: Rates typically adjust with the market, so payments can fluctuate. However, there are fixed rate HELOC options as well.
• Interest-Only Payments (Initially): Many HELOCs allow interest-only payments during the initial draw period, followed by principal plus interest during the repayment phase.
• Great for Ongoing Expenses: Ideal for projects like remodels or expenses that occur over time, since you can access funds as needed.

Considerations:

A HELOC’s variable rate means your payments could increase if interest rates rise. It’s also important to budget carefully, as it’s easy to borrow more than intended.

A Home Equity Loan—sometimes called a second mortgage—lets you borrow a lump sum against your home’s equity and pay it back with fixed payments over a set term.

Key Features of a Home Equity Loan:

• Fixed Interest Rates: Your rate and payment typically remain the same for the life of the loan. However, there are adjustable-rate HELOANs, though they’re far less common.
• Lump Sum Funding: Receive all the funds up front, making it ideal for single, large expenses such as debt consolidation, home improvements, or major purchases.
• Predictable Repayment: Fixed monthly payments make budgeting simple.

Considerations:

Because you receive the funds in one payment, a HELOAN is best suited for borrowers who know exactly how much they need. Fixed rates provide certainty but may be higher than initial HELOC rates.

• Planning a multi-phase remodel or renovation.
• Wanting flexibility to borrow as needed.
• Not sure exactly how much you’ll need upfront.

• Consolidating high-interest debt.
• Covering a single, major expense.
• You prefer the stability of fixed payments.

For more on debt consolidation, check out our Debt Consolidation Loan Guide.

If you’re considering tapping your home equity but aren’t sure which option fits best, refinancing your primary mortgage or looking into a cash-out refinance might also be worth exploring.

• How much money do I need, and when will I need it?
• Am I comfortable with variable payments, or do I prefer predictability?
• Is this for a one-time project or ongoing expenses?
• What is my current mortgage balance and home value?

Choosing between a HELOC and a Home Equity Loan depends on your goals, budget, and comfort with interest rate changes.

At US Lending Company, our experienced loan advisors are here to help you weigh your options and find the right solution for your financial needs.

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Click here to connect with a US Lending Company Loan Advisor.

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