Bad Credit Loans Online – 2 Reasons To Choose A Home Equity Loan Over A HELOC Zoom Fintech
You have options for borrowing against your home, but here’s why a home equity loan may be the best choice.
Home values have grown exponentially in recent months as low mortgage rates and limited housing stock on the market have fueled increased demand from buyers. This is good news not only for homeowners looking to sell their home, but also for those considering borrowing against their home.
As a homeowner, you can borrow against your home once you have enough equity. Equity is the part of your home that you own in full. If the market value of your home (that is, the amount it could sell for) is $ 300,000 and you owe $ 220,000 on your mortgage, that means you have $ 80,000 in net value.
Now, when it comes to borrowing against your home, you have two choices:
- A home equity loan: A direct loan that you take out and repay over time
- A home equity line of credit, or HELOC: A line of credit that you draw on as needed over a period of time and only repay the amount actually borrowed
Many people like HELOCs because they are flexible – you don’t need to withdraw your entire HELOC at once, and you usually have 10 years to borrow. But here are some reasons why a home equity loan may be a better choice for you.
Get $ 150 off closing costs with Better Mortgage
This is one of the major lenders that we have personally used to secure big savings. No commissions, no origination fees, low rates. Get a loan estimate instantly and $ 150 off closing costs.
1. You won’t be tempted to borrow too much
When you take out a home equity loan, you agree to borrow – and pay off – a specific amount upfront. With a HELOC, it’s common to have the flexibility to borrow more than you need, as you don’t have to withdraw all of your HELOC funds at once. But that flexibility could cause you to borrow more and end up with a hefty loan to repay.
Suppose you are looking to renovate your house and estimate that it will cost $ 20,000. With a home equity loan, you will probably only borrow $ 20,000, knowing that you will almost certainly have to pay it all off. With a HELOC, you could apply for a $ 30,000 line of credit just in case, knowing that you can just grab the $ 20,000 you need but still have a cushion.
Well, a year or two after your $ 20,000 renovation, you might want to go on vacation, but you’ll run into the problem of running out of money. But wait – you have $ 10,000 left in your HELOC so you can get the money that way. This is a practical option, of course, but dangerous, because in general, you should not borrow money to take a vacation. Also, if you access that extra $ 10,000, that’s money you have to pay back, with interest.
2. You will pay a fixed interest rate on your loan
When you take out a home equity loan, you pay it off at a fixed interest rate, so your payments will be pleasant and predictable. HELOC interest rates, on the other hand, can fluctuate over the length of your repayment period. This means that your payments may increase over time. This in turn could ruin your household budget.
Of course, that doesn’t mean HELOCs are a bad idea. In some cases, they are a good option. Rather, the point is that home equity loans can, in more than one respect, be a safer borrowing option to consider. Remember, if you fall behind on the home equity loan or HELOC payments, you could risk losing your home. And if a home equity loan helps you control your borrowing and ensures predictable monthly payments, it might be a better choice for you.