In this current housing market, homeowners have never been more creative. There are numerous benefits to taking out a home equity loan or a home equity line of credit (HELOC). It’s important to know all the facts before choosing what kind of loan will work best for you.
Benefits of a HELOC
When you open a HELOC, there are little to no closing costs. Lenders will sometimes waive the fees making them nonexistent. This is a fantastic way to save money while going through a loan process. Most lenders do not charge a fee for drawing funds from a HELOC, allowing another avenue for you to save money.
Since this line of credit is secured by your home equity, they can offer lower rates than unsecured loans, for example, a credit card or personal loan. Oftentimes, they can have a lower interest rate than a home equity loan. Also, its’ a more flexible option than a home equity loan as you can borrow when you need the funds, and you only pay interest on what you’ve borrowed. As a bonus, you don’t have to justify your plans for how you are going to use the funds, contrary to other loan processes. It puts the responsibility in your own hands, giving the power to the consumer.
There are also tax advantages associated with taking out a HELOC. If the interest paid is up to $100,000 in loan principle, it is tax-deductible for most borrowers who itemize.
A HELOC has a maximum cap, protecting you from rising interest rates. This is something to talk with your banker about when considering what options work best for you and your budget.
With a HELOC, you get repayment freedom, choosing how and when you’ll pay the loan back. Check out your repayment options to find the best plan for you!
Benefits of a Home Equity Loan
If you’re unsure if a home equity loan is right for you, below are some benefits to choosing this option for your mortgage.
While a HELOC comes with a variable interest rate, a home equity loan has a fixed interest rate. When a loan has a variable interest rate, it can increase rapidly and unexpectedly at any time. Having a fixed rate takes all the stress out of it and allows you to know what your payment will be each time.
Additionally, since home equity loans are secured by your property, they usually come with a lower interest rate. When you take out a personal loan or credit card, these are less secure, and often have higher interest rates.
While a home equity loan will have a repayment term, it can be quite long and flexible, some ranging to be as long as 20 years. This means affordability! If you have a lower interest rate plus a long repayment plan, odds are your monthly payment will be low and budget-friendly.
Similar to the HELOC, there are tax benefits and you could qualify for a tax write-off. According to the IRS, you can deduct the interest paid on home equity proceeds if only used to buy, build or improve the property that secures the loan.
When it comes to buying a home, building a property, or making large-scale home improvements, choosing between a HELOC and a home equity loan can be a strenuous process. If you’re thinking about either of these and need assistance, reach out to us at Highlands Community Bank! We would love to help you with your home equity journey.