[ad_1] HELOCs and home equity loans are valuable financial tools that enable you to access the equity in your home without the need to take a new first mortgage. Since the proceeds can be used for just about any purpose, you can take either loan to make improvements on your home, or to cover other expenses. These can include paying off credit card debt, financing your child’s college education, or even making the down payment on a vacation home. But while a HELOC and home-equity loan both serve the same purpose, there are major differences in how they work and are repaid. We’re going to dive into those differences to help you decide which loan will work best for you. #ap91594-ww{padding-top:20px;position:relative;text-align:center;font-size:12px;font-family:Archivo, sans-serif}#ap91594-ww #ap91594-ww-indicator{text-align:right;color:#4a4a4a}#ap91594-ww #ap91594-ww-indicator-wrapper{display:inline-flex;align-items:center;justify-content:flex-end;margin-bottom:8px}#ap91594-ww #ap91594-ww-indicator-wrapper:hover #ap91594-ww-text{display:block}#ap91594-ww #ap91594-ww-indicator-wrapper:hover #ap91594-ww-label{display:none}#ap91594-ww #ap91594-ww-text{margin:auto 3px auto auto}#ap91594-ww #ap91594-ww-label{margin-left:4px;margin-right:3px}#ap91594-ww #ap91594-ww-icon{margin:auto;display:inline-block;width:16px;height:16px;min-width:16px;min-height:16px;cursor:pointer}#ap91594-ww #ap91594-ww-icon img{vertical-align:middle;width:16px;height:16px;min-width:16px;min-height:16px}#ap91594-ww #ap91594-ww-text-bottom{margin:5px}#ap91594-ww #ap91594-ww-text{display:none}#ap91594-ww #ap91594-ww-icon img{text-indent:-9999px;color:transparent} Ads by Money. We may be compensated if you click this ad.Ad #ap91594-w-map{max-width:600px;padding:20px 0 10px;margin:0 auto;text-align:center;font-family:”Lato”, Arial, Roboto, sans-serif}#ap91594-w-map #ap91594-w-map-title{color:#212529;font-size:18px;font-weight:700;line-height:27px}#ap91594-w-map #ap91594-w-map-subtitle{color:#9b9b9b;font-size:16px;font-style:italic;line-height:24px}#ap91594-w-map #ap91594-w-disclosure{margin-top:10px;font-size:12px;color:#9b9b9b}#ap91594-w-map #ap91594-w-map-map{max-width:98%;width:100%;height:0;padding-bottom:65%;margin-bottom:20px;position:relative}#ap91594-w-map #ap91594-w-map-map svg{position:absolute;left:0;top:0}#ap91594-w-map #ap91594-w-map-map svg path{fill:#e3efff;stroke:#9b9b9b;pointer-events:all;transition:fill 0.6s ease-in, stroke 0.6s ease-in, stroke-width 0.6s ease-in}#ap91594-w-map #ap91594-w-map-map svg path:hover{stroke:#1261C9;stroke-width:2px;stroke-linejoin:round;fill:#1261C9;cursor:pointer}#ap91594-w-map #ap91594-w-map-map svg g rect{fill:#e3efff;stroke:#9b9b9b;pointer-events:all;transition:fill 0.6s ease-in, stroke 0.6s ease-in, stroke-width 0.6s ease-in}#ap91594-w-map #ap91594-w-map-map svg g text{fill:#000;text-anchor:middle;font:10px Arial;transition:fill 0.6s ease-in}#ap91594-w-map #ap91594-w-map-map svg g .ap00646-w-map-state{display:none}#ap91594-w-map #ap91594-w-map-map svg g .ap00646-w-map-state rect{stroke:#1261C9;stroke-width:2px;stroke-linejoin:round;fill:#1261C9}#ap91594-w-map #ap91594-w-map-map svg g .ap00646-w-map-state text{fill:#fff;font:19px Arial;font-weight:bold}#ap91594-w-map #ap91594-w-map-map svg g:hover{cursor:pointer}#ap91594-w-map #ap91594-w-map-map svg g:hover rect{stroke:#1261C9;stroke-width:2px;stroke-linejoin:round;fill:#1261C9}#ap91594-w-map #ap91594-w-map-map svg g:hover text{fill:#fff}#ap91594-w-map #ap91594-w-map-map svg g:hover .ap00646-w-map-state{display:initial}#ap91594-w-map #ap91594-w-map-btn{padding:9px 41px;display:inline-block;color:#fff;font-size:16px;line-height:1.25;text-decoration:none;background-color:#1261c9;border-radius:2px}#ap91594-w-map #ap91594-w-map-btn:hover{color:#fff;background-color:#508fc9} If your income has taken a hit, a Home Equity Loan may offer less expensive help. Using a line of credit secured by home equity can aid you in your time of need. Click on your state below to learn more. HawaiiAlaskaFloridaSouth CarolinaGeorgiaAlabamaNorth CarolinaTennesseeRIRhode IslandCTConnecticutMAMassachusettsMaineNHNew HampshireVTVermontNew YorkNJNew JerseyDEDelawareMDMarylandWest VirginiaOhioMichiganArizonaNevadaUtahColoradoNew MexicoSouth DakotaIowaIndianaIllinoisMinnesotaWisconsinMissouriLouisianaVirginiaDCWashington DCIdahoCaliforniaNorth DakotaWashingtonOregonMontanaWyomingNebraskaKansasOklahomaPennsylvaniaKentuckyMississippiArkansasTexas View Rates What is a HELOC? The Benefits of a HELOC HELOC is an abbreviation for home equity line of credit. The “line of credit” part of the title is what distinguishes a HELOC from a home equity loan. A HELOC is essentially a revolving line of credit that works much like a credit card, except that it’s secured by your home. Because it is, you’ll not only get the benefit of a larger credit line, but also a much lower interest rate than you can get on a credit card. And since it is a revolving line of credit, you’ll pay interest only on the outstanding loan balance. For example, if your HELOC is for $50,000, and $10,000 is outstanding, you’ll pay interest only on $10,000. Much like a credit card, as you repay the balance on your credit line, the available balance will be restored. Still another benefit is that HELOCs usually have a lower interest rate than a home equity loan. And during the first few years of a HELOC, you’ll pay interest only on the outstanding loan balance. This will leave you with a much lower payment than you’d have with a home equity loan. HELOC proceeds can be used for any purpose, whether to make improvements on your home, pay off debts, or finance major purchases. To qualify for a HELOC, you’ll need to have substantial equity in your home. Most lenders will typically lend between 80% and 90% of the value of your home, reduced by the balance of your existing first mortgage. If your home is worth $500,000, you currently have $300,000 loan on the property, and a lender will provide a HELOC at up to 80% of the value of your home, the HELOC can be set as high as $100,000 ($500,000 X 80%, minus $300,000 for the first mortgage). Because the loan is in a second position on your property, you’ll need to have good or excellent credit to qualify, as well as a stable income that comfortably supports the new payment. The Downsides of a HELOC As easy as HELOC terms can be, there are some downsides you need to be aware of: The draw period. That’s the period of time during which you’ll have access to the credit line, after which the loan must be fully repaid. While the typical term of a HELOC can be 20 or 30 years, you’ll only be able to draw funds against the line for 10 or 15 of those years. After that, you’ll need to make payments, including both interest and principal, until the loan is fully repaid. Variable interest rate. Though HELOCs do have lower interest rates than home equity loans, those rates are variable. That means the rate you’ll pay on your HELOC will rise when interest rates increase. Naturally, when the interest rate rises, your payment will also increase. HELOCs can be reduced or frozen. A lender can reduce or freeze your HELOC under certain conditions. That can include a significant decline in your credit score or in the value of your home. For example, though your HELOC may be for $50,000, a drop in your credit score may cause the lender to freeze the line, denying you access to the unused portion of your line. What is a Home Equity Loan? The Benefits of a Home Equity Loan A home equity loan works much like a HELOC, except that it is a true loan, and not a revolving line of credit. You can think of it as a smaller version of your first mortgage. You’ll take a fixed loan amount, receive the proceeds at closing, then make regularly scheduled monthly payments until the loan is fully paid. Because it is a fixed rate loan, the interest rate will be higher on a home-equity loan than it will be on a HELOC. But you will have the benefit of a fixed interest rate and monthly payment throughout the term of the loan. Qualification for a home-equity loan works much the way it does with a HELOC. The lender will offer you access to between 80% and 90% of the value of your home, less the existing first mortgage balance. You’ll also need to have good or excellent credit, as well as a stable income
