If you are like myself and many others, you have determined that there is some equity in your home! The possibilities are endless as to what you can use this money for, consolidating debt, adding another bedroom, remodeling your kitchen, ahhhh so many options! But before you start making it rain with equity, you need to determine which is best for you, a Home Equity Loan or Home Equity Line of Credit (HELOC). Be sure to also keep in mind that this loan is backed by your home.
Home Equity Line of Credit or Loan?
There a few factors that come into play when deciding which option is best for you to access your equity. The three ways to access the cash in your home are via a home equity line of credit, home equity loan or a cash-out refinance, however the first two options are most popular and are what we’re focusing on today. This choice will depend on you when you intend to pay the money back, what you will be using the money for and your current financial status (debt to income ratio and credit score). To further help you solve this question, let’s compare the main differences between the two. And, if you want to do some more research after you read this post, Capital One has some great information and tools that can help you determine exactly which option is best for you and what your customized rate and loan amount would be (without affecting your credit score) at CapitalOne.com/home-equity.
Home Equity Line of Credit (HELOC)
If you know that you want to have easy access to your equity, but still have not nailed down exactly how much you will need, this may be a good option for you. Just like a credit card, you only pay on the amount used, once you start using it or request a withdrawal. Although this works similar to a credit card (however you will not receive a physical card to swipe), the interest rates will typically be much lower, thanks to your home securing the amount you are borrowing. Another reason this is a popular borrowing option, especially for entrepreneurs, is because you will only be required to make interest payments during the draw period, then will switch to principal and interest payments.
Home Equity Loan
If you know how much you will need to borrow exactly, then the loan may be what you need. This loan will be a one-time lump sum payment, with fixed monthly payments, that will include principal and interest payments (similar to your mortgage, student loan or car payment), until the loan is paid off. The interest rates on this loan will also be lower than other types of credit since your home is securing the amount you are borrowing. And again, with Capital One, there are no burdensome fees on closing costs and in this case, no annual fee on the loan.
As you can see, these are two really great options to access the equity in your home, depending on your goals for this money and how you would like to pay it back. The loan appears to be a more straightforward option, and the HELOC has a few more stipulations, but more flexibility in withdrawals and payments. No matter what you choose to help you reach your financial goals, be sure to do your homework and determine how much you can handle borrowing. If these funds are used responsibly, it can be just the boost you need to begin bringing your Dreams2Reality!
You can determine exactly which option is best for you, get your customized rate and loan amount (without affecting your credit score) by visiting CapitalOne.com/home-equity.