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One thing about owning property is that it helps in getting loans. One can easily obtain secured loans by using the house as collateral. Moreover, secured loans are a lot more affordable than the unsecured variety. Those who have no mortgages to pay should have no troubles in getting secured loans. Those who are still paying off the mortgage installments can make use of the equity on their home to pay off their sundry bills and expenses. More importantly, these days, we do not only have the option of home equity loans. There are other lines of credit that one can go in for.
HELOC or Home Equity Line of Credit is among the various new options being used instead of the home equity loan. In the case of HELOC, the bank provides a number of equity checks that may be used as and when to take a loan depending on one’s equity balance. These equity checks, typically allow us to take loans from a given balance. The great thing about HELOC is that we are not required to take home a huge amount at a time. The checks give us the freedom to draw only the required amounts at the time.
This also means that the interest amount that we pay every month varies depending on the amount of loan taken. Moreover, the rates of interest for home equity lines of credit are variable. They vary according to changing market conditions. Thus, you might find yourself paying a higher interest rate one month, and a considerably lower one in the next. However, when deciding on a loan package, make sure that you go with the one that charges a lower APR overall. Also, make it a point to ask what the cap is on the interest that will have to be paid by you. This rate cap is different across states and lenders.
Thus, a HELOC is very different from the traditional home equity loan. Whereas HELOC allows one to advance oneself varying loan amounts over a period of time, a home equity loan amount is obtained at a single time. Just as HELOC has variable rates, a home equity loan has fixed interest rates. This rate will not be subject to ups and downs depending on market conditions. As far as repayment terms are concerned, a home equity loan involves fixed monthly payments lasting a certain specified period. In HELOC, the terms are far more flexible. Overall, the two are very different, and which one you choose would depend on your own particular needs.
Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a blog, newsletter, and podcast for seniors and retirees, that teaches the art of real estate investing. His personal real estate investing goal, which will be chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in the next 6 years. Prior to that, Bill and his family lived in Haiti for 11 years as missionaries serving orphaned, abandoned and at-risk children.
