Using a home equity loan or a home equity line of credit will allow you to access your equity in cash but it is important to understand the advantages and disadvantages of each so that you select the option that is best for you. Knowing the pros and cons is a must because you will be able to make an informed decision and will be able to choose the right type of financing for home renovations or other financial goals you may have.
A home equity line of credit (HELOC) is essentially like a revolving line of credit that is secured by your home. You can withdraw money whenever you need it and pay back the balance until it’s at zero and can re-use the line for a set time frame. There is a maximum limit and once the set period ends, the remaining balance would have to be paid in full or on a fixed-installment schedule. There are a number of advantages to this option, including the fact that you can tap into your equity as needed and pay off the balance without closing the line. You would also have the option to make interest-only payments and the interest rates would be a lot lower than personal loans or credit cards. Additionally, if the equity is used for home improvements, the interest may be tax-deductible.
The disadvantage to this option is that the adjustable rates may result in higher monthly payments and the draw period will only last for a limited time, usually ten years. You may also face a balloon payment once the draw period ends and there may be an annual membership and close-out fees as well.
A home equity loan is typically a fixed-rate loan that provides cash in lump sums for a set repayment period. The loan terms will vary but are generally between five and 15 years. Home equity loans are often referred to as second mortgages and the advantage to this option is that it comes with a fixed payment for the life of the loan. It also has lower interest rates than credit cards or personal loans, and the interest may be tax deductible if the loan is used for home renovations.
The disadvantage is that interest rates are generally higher when compared to a home equity line of credit or a first mortgage and the closing costs can be high. There is also the possibility that you could lose your home if you default.
To make the right decision, you must weigh the pros and cons of each option and compare the information. Benevolent Bancorp can help guide you in the right direction, so if you are looking for the best private mortgage brokers in Surrey, we are the answer. Whether you need a home equity line of credit, pre-approved mortgages, a self-employed mortgage or 2nd mortgages, we can help, so if you want competitive rates and have been searching for mortgage brokers near me, give us a call today!