"3 Key Questions Before You Choose a HELOC or Home Equity Loan"

A second mortgage is any loan that involves a second lien on the property. Some second mortgages are for a fixed dollar amount paid out at one time, in the same way as a first mortgage. As with firsts, such second mortgages may be fixed-rate or adjustable-rate. If you are considering borrowing against the equity in your home, you should have a clear understanding of the differences between a HELOC and home equity loan.

A home equity loan might be the best for you if you plan to use the money in a lump sum. A common example is a series of home improvements, one followed by another. College tuition payments is another or if you need to consolidate your credit card debt. The interest rate is fixed, and so are the monthly payments so you can budget accordingly.

A HELOC also called home equity line of credit, might be better if you need money periodically and not all at once. A HELOC gives you the flexibility to borrow what you need, when you need it. The borrower establishes a line of credit, which should be no more than the equity he has in his home. The rate of interest fluctuates with the money marketplace. After the line of credit is approved, the borrower receives a checkbook, in essence enabling the homeowner to write herself a loan when needed. The  beauty of a HELOC is you can tap as little or as much of your line of credit as you wish.

Here are 3 key questions when you need to find out what might be a better fit for you:

Do you need the money in a lump sum or in several installments?
If you need the money in a lump sum, you should consider getting a home equity loan. If you need the money in installments, you should consider getting an equity line of credit.

Are you comfortable with a variable rate?
A home equity line of credit (HELOC) has an adjustable rate that will most likely changes every time the Federal Reserve raises or lowers the federal funds rate. If you don't like the idea of having a rate that could rise every time the Fed meets, consider getting a home equity loan, which has a fixed rate. Most HELOCs are indexed to the prime rate. The prime rate in turn is hitched to the federal funds rate set by the Federal Reserve's rate-setting committee.

Would a HELOC be a better fit as you may be tempted to be more careful when using the money?
If you choose a HELOC, you may borrow as little as you wish, thus you may keep your second mortgage as little as possible and pay it off as fast as possible. You may consider using the money in case of emergencies. If you take a home equity loan you know that you have borrow a certain amount of money and you have to pay off a bigger amount since you have used all the money.

To Your Success,

Andre Plessis

Andre Plessis
"The Mortgage Guru"
"A Mortgage Professional whose primary goal is to provide the expertise, guidance and skills necessary to obtain the best mortgage to meet your personal needs".
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P.S. If you are at all intimidated or unsure about the mortgage process if you don’t understand how to evaluate your options in getting a mortgage loan our 24 key questions will help you feel comfortable that you are making the best decisions. Also if you are in the process of refinancing your home with anyone, CALL ME and I will let you know if you are being offered the best loan option based on market conditions and your financial situation.

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