Why a HELOC may be the best way to access your home's equity
In today's economic climate with cooled (but still persistent) inflation and higher interest rates designed to combat it, many homeowners and prospective buyers are out of luck. Interest rates are exponentially higher than just a few years ago, thus diminishing the benefit of refinancing and eliminating many buyers from the market in total. Fortunately, current owners have a resource that they can use in the interim to improve their homes - and boost their values.
By tapping into their existing home equity, owners can renovate their homes and make major repairs and improvements, and they can do so at lower interest rates than what would normally be available with other options like credit cards and personal loans. Two of the more prominent ways to tap into this existing equity are via home equity loans and home equity lines of credit (HELOC). While both have pros and cons, there are some compelling arguments that a HELOC may be your best choice.
Start by exploring your HELOC options here now to see what rates you qualify for.
Why a HELOC may be the best way to access your home's equity
While a home equity loan may help you reach your goals, a HELOC may be the best option for your personal situation. Here are three reasons why.
You only pay for what you use
With a home equity loan, you'll have to pay back the full amount you borrowed, with interest. But that's not the case with a HELOC. A HELOC operates as a revolving line of credit, as a credit card does. So you'll only pay back what you borrow as you borrow it. This could save you significant sums of interest over time, particularly if you ultimately realize that you didn't need as much funding as you initially anticipated.
Check your HELOC options here now to learn more.
Interest rates are lower
Not only will you likely pay less interest with a HELOC (due to the way the money is provided each month), but the interest rate you do pay will probably be lower than what you would have got saddled with if you took out a home equity loan instead. While rates on both types of home loans tend to be comparable, HELOCs have variable ones, which are often a bit lower than what you could get with a home equity loan. Just note the keyword there — "variable" — meaning that rates could also potentially increase in the future, unlike a home equity loan which is locked.
You have more flexibility
As mentioned above, a home equity loan comes locked with an interest rate — but it's tied to one lump sum. This may be beneficial if you know exactly what you need and exactly what your costs will be. But if you don't, and want some flexibility in terms of how much you can borrow and when you receive the funds, a HELOC is the better option. If you think you need $20,000 for a kitchen renovation, for example, but only really wind up needing $15,000, then you'll have been better served by going the HELOC route. If you had gone with a home equity loan instead, you'll be stuck with paying interest on the full $20,000 versus the $15,000 you ultimately used.
Explore your HELOC options here now to see if makes sense for you.
The bottom line
Home equity loans and HELOCs both offer homeowners a cost-effective and smart way to renovate and improve their homes by using the money they've already accumulated in their property. While both have unique advantages, for some homeowners a HELOC may be the best way to access their equity. With more flexible terms, lower interest rates and interest only on what you use (not the full amount you're approved to borrow), a HELOC could be an option worth pursuing while you rate for the larger rate environment to shake out. Learn more about HELOCs, home equity loans and other ways to access your home equity here now.
