There’s no doubt that your home is an extremely valuable investment – not only because of what it offers in terms of a place for you and your family to live, grow and prosper, but also thanks to the flexibility it provides for tapping into your ever-growing equity.
Equity is the difference between the value of your home and the unpaid balance of your current mortgage. Whether you’re looking for funds to cover renovations or repairs, or consolidate high-interest debt, it makes sense to take advantage of your biggest asset in an affordable manner.
A home equity line of credit (HELOC) is a popular option and presents many benefits over a more traditional loan or a refinance. Because a HELOC is secured by the home itself and, therefore, considered low-risk in the eyes of lenders, the interest rate tends to be lower than other types of loans, which means lower payments and a lower loan cost over time.
With a traditional loan, you receive a fixed amount of money in one lump sum, which needs to be paid back over an agreed term and interest rates tend to be higher.
Another defining feature of a HELOC is the flexibility it provides. You’re not required to have any set plans for the funds. You can use them as you see fit, access them as needed in the amount you need, and only pay interest on what you withdraw.
If, however, you refinance your mortgage or take out a more traditional loan, you’ll be charged interest on the entire amount.
A HELOC also provides access to a large sum of money if you have a lot of equity built up in your property without affecting your existing mortgage, as it uses your equity as collateral.
With a mortgage refinance, since you’re applying for a new mortgage, you’re required to pay the associated fees, which can add up. You may also be faced with higher interest rates and additional changes to the term of your original mortgage agreement.
Have questions about home equity lines of credit? Answers are just a call or email away!