Workflow
HELOC vs. home equity loan: Tapping your equity without refinancing
Yahoo Financeยท2023-12-15 17:48

Core Insights - The article discusses the differences between home equity loans and home equity lines of credit (HELOCs), highlighting their unique features and suitable use cases. Group 1: Home Equity Calculation - To calculate home equity, subtract the mortgage balance from the home's value, e.g., a $300,000 home with a $150,000 mortgage results in $150,000 equity [2] - Lenders typically allow borrowing between 80% and 85% of the equity, minus the current loan balance [3][4] Group 2: HELOC Overview - A HELOC is a revolving credit account allowing on-demand withdrawals from an approved limit, similar to a credit card, but usually with lower interest rates [5] - Interest is only paid on the amount withdrawn, and it may be tax-deductible if used for home improvements [6] - HELOCs have a draw period (generally 10 years) and a repayment period (typically 20 years), with variable interest rates [7] Group 3: Home Equity Loan Overview - A home equity loan is a second mortgage providing a lump sum of money, typically with a fixed interest rate [12] - Interest paid may also be tax-deductible if used for home improvements [12] - Home equity loans are suitable for significant known expenses or debt consolidation due to generally lower rates compared to other borrowing products [15] Group 4: Comparison and Recommendations - A home equity loan is preferable for those needing a large sum of cash for known expenses, while a HELOC is better for ongoing cash needs [22][23] - Both options require a good credit score, sufficient income, and a certain level of equity in the home [19]