We dive right into the age-old debate of HELOC vs Home Equity Loan, aiming to uncover the right choice for your personal needs. #mortgage#HELOC#homeloans
Many homeowners explore these options to tap into their home's equity for various purposes. Whether you're considering a Home Equity Line of Credit (HELOC) or a traditional Home Equity Loan, understanding the key differences and benefits is crucial. By the end of this video, you'll have a clear picture of which option aligns better with your financial goals and circumstances.
We begin by explaining what a HELOC and a Home Equity Loan exactly are, breaking down the underlying concepts and features. Then, we delve into the advantages and disadvantages of each choice, exploring aspects such as interest rates, repayment terms, flexibility, and potential risks. With this comprehensive analysis, you'll gain insights into how these financing options can impact your monthly payments and overall financial stability.
Furthermore, we highlight important considerations to keep in mind when deciding between a HELOC and a Home Equity Loan. Factors like future plans, risk tolerance, credit score, and current mortgage terms can significantly influence your ultimate decision. By addressing these aspects, we hope to equip you with the necessary knowledge to make an informed and confident choice.
Additionally, we touch upon frequently asked questions and address common misconceptions surrounding these financing options. By dispelling myths and clarifying doubts, our aim is to empower you with accurate information to navigate this crucial decision-making process effectively.
So, if you're a homeowner looking to leverage the equity in your property, this video is your ultimate guide to understanding the key differences between a HELOC and a Home Equity Loan. Discover which one makes more sense for your specific circumstances, evaluate the potential benefits and drawbacks, and make a decision that aligns with your long-term financial goals. Be sure to subscribe for more relevant content on all things related to home financing and real estate.
Hey guys, welcome back to another week of Mortgage Matters in Minutes. Again,
I'm your host Brent Rasmussen, owner of Mortgage Specialists.
Today we're going to talk about a topic here that comes up very regularly,
no matter if the markets are great or they're not great and rates are high or rates are low.
It's talking about the pros and cons of HELOCs versus home equity loans,
and which one is the right one for you. And it's different for every single person generally,
but we want to cover the points today to make sure that we're covering
what is beneficial for you and what the facts are in regards to both kinds of loans.
So first HELOCs and home equity loans are two completely different kinds of loans.
And when clients call and people call, they do always throw out there,
hey, I need a home equity loan. And obviously we know there's different options and what they mean.
They might throw out an equity loan or a second mortgage. Those are all kind of the same terms,
but honestly we're using different types of loans to make those happen.
So let's first talk about what a HELOC is, which is a home equity line of credit.
And what's nice about those is that they are kind of like I described to clients,
like a credit card, but with cheaper interest rates. So there are, there's an open ending
balance that you can charge up to. And if you, for example, pay that particular balance down,
you can recharge on it like a credit card. So you could use it over and over and over
as you pay down on it. Those loans have an interest only payment and the interest itself
can be an adjustable rate mortgage, which means as the prime fed rate goes up or as
the primary goes up or down, your interest rate can go up or down with it. So for some,
they don't like the idea of that happening. But in regards to using that line of credit
over and over and over, that's great. And that's a good positive of that type of loan.
Usually there's draw period is the first 10 years. After the 10 years,
you cannot use it like a credit card anymore and it turns into a fixed rate loan. So it is
a flexible lending option that gives you a little bit best of both kinds of worlds.
So now let's talk about the home equity loan and the home equity loan, just like the word says,
a loan, it's a fully amortizing loan. So what does a fully amortizing loan mean?
It's like a car loan. It's you start with a large balance and the payment is exactly the same every
single month. And as you make your payments, the loan amount goes down. You cannot recharge
on that particular loan again. Once your balance goes from say $30,000 to 29,000 to 28 to 27,
you cannot charge thousand or $2,000 more back on that particular account.
The home equity loan is great for budgeting purposes to know exactly what your loan payment
is going to be, what your rate is locked in at. This is not an interest only payment,
it's a locked in rate, but you also know the time that you're going to take to pay it off.
So you might take a five, 10, 15 or 20 year loan. Generally on home equity loans,
they don't extend out much farther past than 20 years. But what's nice about those is if you pay
the equal amount every single month, you know in five, 10 or 20 years, that loan is completely done
and you don't have to worry about making the payments extra as well. So why would someone
take the home equity line of credit over the loan? And everyone is a little different. Generally
speaking, I like the line of credit. I like giving clients the ability to have that sitting open
with a zero balance. If you need to use it, you can use it. Some people want the flexibility of
having a equal monthly mortgage payment every single month, or they want to say, hey, I want
to finish my basement for $100,000 and I want an easy way, a fixed way to pay off my loan,
where some people might not like the line of credit because the rate can change up and down.
And if they're only charging you an interest only payment, some people might not be budget
friendly enough to make enough extra on top of that interest only payment to lower the balance.
And some people have stated, hey, I've taken out a line of credit, but my balance never seems to
lower. And obviously they're not paying anything towards the principal. So home equity lines of
credit are very fluctuating depending on how markets are going. Like right now, we're seeing
higher interest rates, but as rates go back down, the line of credit rate will go down with it.
But if you locked in a home equity loan two, three years ago, when rates were lower, that
might be a more beneficial loan to have than taking out a line of credit right now. So both
of them have their pros and cons. And really what you want to look at in talking to a lender with a
line of credit or a loan is what's your credit score? How much are you borrowing at your house?
Because that makes a difference. And then you can look at the pros and cons of different terms of
the loans versus the line of credit and decide which one fits your risk level, your budgetary
needs, or also your usage. You know, if you plan on using this line of credit, very small amounts
and paying it off and using it again and paying it off, maybe line of credit is better for you.
Or maybe you're using a line of credit to purchase a vehicle and you just want a $20,000 loan and pay
it completely off. So there's pros and cons to looking at it both ways. And there's risks and
considerations in regards to both kinds of loans. They work for both people. They're just different
types and work for two different situations, depending on if you like the certain scenarios.
So hopefully today you learned a little bit about the difference between a line of credit
and a home equity loan. They both can be second mortgages. They both can be first mortgages.
If you choose to not have a loan out there outstanding, a lot of times we advise clients
to take out either a line of credit or a loan because the closing costs on these loans are
much cheaper. The rates are higher than first mortgages. But if you don't want to take out a
new loan and pay a larger closing cost that a first mortgage many times comes with, you can
take out the home equity line or loan. Hopefully you get a chance to learn a little bit each week
if you subscribe to our YouTube channel about different kinds of financing, different kinds
of financing in regards to real estate and purchasing homes, and how important homeownership
is to your net value and your net worth as you move forward. Check us out each and every week
here on our Mortgage Matters in Minutes to be educated in regards to all kinds of financing.
Hope you have a great rest of your week and we'll see you here next time. Thanks so much.
Mortgage Specialists. Driven. Trusted. Reliable.
