July 06, 2016
Big expense on the horizon - your home equity could help.
- Making home improvements
- Planning a wedding
- Covering medical or dental expenses
- Paying college costs
- Consolidating debt
Home Equity Loan
- What is it? A home equity loan gives you a set amount of funds at one time. The amount you qualify to borrow is based on a percentage of your home's value. The value of your home minus the amount of mortgage you still owe equals your home equity. With a home equity loan, your interest rate and monthly payment are fixed for the life of the loan. You begin repaying the loan immediately, and the set payment includes the principal plus the interest charged on the full amount borrowed.
- The benefits: You enjoy peace of mind. You have a set amount of funds to put toward your goal, and the terms are set. Your payments won't change, and you have a specified number of payments with a set end date.
- Best for: If you're borrowing for a single expense, like a kitchen remodel, a wedding, a one-time medical treatment or debt consolidation, this may be the right option for you.
Home Equity Line of Credit
- What is it? A HELOC is a revolving line of credit, similar to a credit card. You can use the money as you need it up to a predetermined limit by writing a check or transferring funds. You repay the debt in monthly payments that can range from the minimum due to the full balance. You accrue interest only on the funds you use, regardless of your loan limit. Rates are typically variable.
- The benefits: A HELOC offers the flexibility and convenience of ongoing credit. You can access any amount within the pre-approved limit, and it's available when you need it.
- Best for: This option may be better suited for ongoing expenses, such as college tuition or paying for braces. It can also be a good choice if you want a financial safety net that can be accessed quickly and easily.
While they each have their particular benefits, both home equity loans and lines of credit can offer you a financially sound option when you need to finance some of life's major milestones, emergencies and events.
*Consult with your tax adviser regarding the deductibility of interest