Should you get a Home Equity Loan or a HELOC?
Have you ever wondered what the difference is between a home equity loan and a home equity line of credit? We completely understand how these two types of loans can be confusing to differentiate from one another. Peoples Security Bank is here to explain the differences which may help you make a decision now or in the future on which product will serve you best.
What is a Home Equity Loan?
A home equity loan has a more rigid structure and gives the borrower a lump sum that is upfront and payments are fixed over the life or term of the loan. Home equity is a portion of your home’s value that isn’t currently mortgaged and that you own. The more you pay off your mortgage every month, the equity in your home increases. The advantages of a home equity loan are if you know approximately how much money you need, then this type of loan is more beneficial to you.
What is a Home Equity Line of Credit (HELOC)?
A home equity line of credit is a loan that has a more flexible structure than a home equity loan. When a lender approves a HELOC, the homeowner is allowed to borrow up to a certain amount against the value of their home, with borrowers able to draw money as they need it and repay it as they can. A HELOC is split into two different segments. There is the draw period which allows the borrower to use money from the lender to start on their project and then there’s the repayment period which is when the loan is expected to be repaid over time. The huge advantage of a HELOC over a home equity loan is the flexibility it offers to the borrower if they are unsure of the cost of their project and you can borrow the funds again once the balance is paid off. Keep in mind that there are payments during the draw period, which may be interest-only or principal plus interest.
Finding out which is Right for You
Please be aware that choosing between a home equity loan and HELOC depends on each person’s financial situation and the project that the loan is for. Peoples Security Bank offers home equity loans and HELOCs to all customers and our team of experienced professionals can provide assistance and guidance on which loan you should seriously consider. If you have a particular project that you know how much it will cost, then go with a home equity loan. If you are unsure of the scope and project and how much it might cost you in the long run, then a home equity line of credit is a better fit.