Home equity is the difference between what you still owe on your mortgage and what your house is worth. If the difference is greater, that means you’ve got equity that you can use. The best part is there is a large variety of ways that you can spend the finances. Most opt to go with improvements, though others consider using the funds to pay for their child’s college tuition, purchase a new car, pay off debts or even start their own business. There are plenty of ways to tap into this, whether you want to look into home equity loans or home equity lines of credit. A review of these options can allow consumers to access a substantial amount, including yourself.
You can also visit USDA homes for sale to see what homes are available out there.
Home Equity Loans
These types of loans allow you to borrow against the equity of your house (it is also commonly referred to as a second mortgage). You will receive a set amount of money decided on by your house’s appraised value that you will pay back on an established repayment plan. Payment rates will be regular and fixed, though, with these loans, interest tends to be much lower than with other sources of credit, like credit cards.
Home Equity Lines of Credit
Home equity lines of credit, or HELOCs as they are commonly referred to, are quite like the alternative. The difference is that HELOCs are credit, whereas the former is a lump sum you receive. With a line of credit, you only ever borrow what you need, which you will pay back and receive more credit. Most HELOCs have a variable interest rate and a 10-year draw period that you can refer to.
Which is Better?
So, which is the better option? It really depends on whether you would prefer a lump sum of money now or if you’d rather remain flexible with what you get. Some homeowners prefer home equity loans due to their fixed interest rates and set monthly payments and typically use them for one-time big financial needs. Others prefer HELOCs for financial needs of an unsure cost, particularly when it comes to things like home improvements, where costs can vary based on materials and time.
It is worth reviewing guides on the two choices to make your options clearer. You can find in-depth explanations of these courses of action through lender websites, which are typically banks such as PNC Bank, Bank of America or U.S. Bank.
By far, the biggest reason homeowners obtain either type of loan is to take on home improvements. After all, improving one’s home often leads to great resale value down the road as well as a higher quality of living in the now. There are plenty of different types of improvement projects as well, including installing extra space, performing maintenance, putting in more energy-efficient appliances, or adding outside space, to name a few. An examination of your house and understanding of your budget and if you will need to save more money beforehand can help you settle on the optimal project for you.