There are various reasons due to which people go for a home equity line of credit. An emergency can come anytime, and in such situation, the home equity will provide you with a secure and low interest-based loan. You may want to take aloan for any of following reasons:
- Debt consolidation
- A second home
- College tuition
- Home renovation project
- Any other reason
You should choose to go for home equity loan only when you are sure you will be able to pay it back in time. The reason for taking equity should also be reasonable like some mentioned above. It is not an everyday game to use the equity in your home because ultimately, you will have to pay the fees and interest on the borrowed amount.
Home Equity Loan or Home equity line of credit?
Sometimes, people get confused between the home equity line of credit and home equity loan. They often find it difficult to choose the better lending option. Both are two very different mortgage types. However, both can allow you to use the equity in your home to borrow money from the lender.
Now, with a little attention, it is very easy to guess the kind of loan that you need. Whether you need the equity loan or the home equity line of credit, the below-mentioned differences between the two will make your task very simple.
- If you need a big amount of money and agree to pay a fixed interest rate on it, then home equity loan is preferred. However, if you want to get money in small amounts from the equity over a period, then home equity line of credit should opt. However, there is an adjustable interest rate associated with HELOC.
- In case of HELOC, you can borrow the amount as you need it.
- You can pay back the home equity loan in a lump sum. But in case of HELOC, there is only interest payment option.
Advantages of HELOC
Depending on the situation, a person can get a home equity line of credit and benefit from its merits. The advantages of this equity line of credit include:
- There are very low upfront costs in HELOC as compared to those of home equity loans.
- The interest rate associated with ahome equity line of credit is always lesser than that of most credit cards.
- The Home equity line of credit most often has very low or no closing costs at all.
- You can check with your accountant to confirm whether the interest paid on a Home equity line of credit is tax deductible or not.
- During the draw period, some lenders can offer flexibility to the customers who can make interest-only
- The home equity line of credit will enable you to access the money whenever you need
- Until the payout is structured carefully, the customer will be deprived of certain government benefits.