A home equity line of credit, or HELOC, is a loan in which the lender agrees to lend a maximum amount within an agreed period, where the collateral is the borrower’s equity in their house.
When is a HELOC the best option?
When you're considering a HELOC vs. home equity loan, think about the amount that you actually need. If you're not sure exactly how much you'll be spending but want to be able to cover unexpected costs that may arise over a long period of time, a HELOC may be the best fit for your situation. If you suspect you'll need to draw money over time, like with a long-term project or a larger ongoing expense, a HELOC may be best for you. A HELOC also gives you the flexibility to borrow only the amounts you need and pay back those amounts as you go.
When you qualify for a home equity loan, you'll receive the loan in a lump sum upfront. Most HELOANS have a fixed interest rate, so your monthly payment (including principal and interest) will remain the same throughout the lifetime of the loan.
When is a HELOAN the best option?
A HELOAN may be a better fit for you if you have fixed costs and you prefer the stability of a long-term, fixed monthly payment. Since HELOANs provide a one-time lump sum of money, this type of loan may be better for a larger, one-time expense - like a vacation or an unexpected medical bill. With a Home Equity Loan, you'll also have the benefit of a spending cap already in place, and you'll know exactly how much you'll have to repay.
When you're deciding whether to apply for a HELOC vs. home equity loan, calculate how much money you need and when, and whether you want a fixed or variable monthly payment. HELOCs are great if you want the flexibility to borrow as needed over a longer period of time, while HELOANs are a great way to access a one-time lump sum of money. Keep in mind that with both options, your home is used as collateral in exchange for lower interest rates and larger credit limits. Talk to United Mortgage Corporation of America to see which option is best for you.