HELOC or Home Equity Loan – Know The Difference?
We know there are times when you need emergency funds or want to do home renovations. There are a couple of options for obtaining the cash needed for these situations. A HELOC, or Home Equity Line of Credit, and a Home Equity Loan are two loans to consider. They are in some ways similar but also have differences. At INSOUTH Bank we want to equip you to make decisions regarding loans.
This is not a lump sum loan but an open line of credit. After approval, you’ll be given a credit limit that’s based on the value of your home. You’ll be able to withdraw any amount you need up to the credit limit you were given. As you withdraw funds, you’ll be required to pay them back with interest. Interest rates are based on the current prime rate. If you choose to sell your home, you’ll be required to pay the entire loan back. When you open a HELOC, make sure you can make payments because the value of your home is used as collateral.
Home Equity Loan
Unlike a HELOC, a Home Equity Loan is a one time loan. The loan is repaid monthly with a fixed or adjustable interest rate. Most people prefer a fixed rate because it’s easier to budget monthly payments when the interest rate stays the same. Consider the fact that there will most likely be fees and closing costs as well. As with a HELOC, the loan is required to be paid in full when the home sells. Again, make sure you’re ready to make payments each month as the value of your home is used as collateral.
As you can see, HELOC and Home Equity Loans have differences and similarities. If you have any further questions about applying for one of these loans, please contact one of our knowledgeable INSOUTH Bankers
Share this Post