{"id":1659,"date":"2022-01-06T14:00:00","date_gmt":"2022-01-06T22:00:00","guid":{"rendered":"https:\/\/www.flyhomes.com\/blog\/?p=1659"},"modified":"2022-05-26T11:52:03","modified_gmt":"2022-05-26T18:52:03","slug":"all-about-home-equity-loans-and-helocs","status":"publish","type":"post","link":"https:\/\/flyhomes.com\/blog\/all-about-home-equity-loans-and-helocs\/","title":{"rendered":"Home Equity Loans and HELOCs explained"},"content":{"rendered":"\n

What are the main differences between these home equity tools?<\/h2>\n\n\n\n

As a homeowner, your home can be one of the most important tools to access low-cost funds over time. Once you build enough equity, you can secure a low-cost home equity loan or a home equity line of credit (HELOC). These loans generally have low interest rates, but that\u2019s because they use your home as collateral. So it\u2019s important to understand the pros and cons of each loan. <\/p>\n\n\n\n

We\u2019ll go through both types of loans and explain the key differences between them. But first, let\u2019s talk about how home equity works. <\/p>\n\n\n\n

Home equity explained<\/h3>\n\n\n\n

Your home equity is the difference between the amount you owe toward your mortgage loan and the value of your home. If you bought a home for $500,000 and paid a 20% down payment of $100,000, your loan is for $400,000. Over time, you\u2019ll pay off that mortgage and continually build your equity as the amount you owe decreases and the value of your home increases.<\/p>\n\n\n\n

For example, once you\u2019ve paid off $50,000 of your mortgage, you\u2019ll owe $350,000. But what if your home is now worth $600,000? If you were to sell it, you would first pay off the remainder of the mortgage then keep the remaining balance of $250,000. That number is your home equity\u2014and is what would be available to you as a home equity loan or HELOC. <\/p>\n\n\n\n

How to use home equity for low-cost funds<\/h3>\n\n\n\n

Taking out a home equity loan is like taking out an additional mortgage. Depending on the amount of equity you have in your home, you can borrow cash from that amount and then pay it back with interest in monthly installments over time, similar to how you pay your first mortgage. <\/p>\n\n\n\n

Both types of equity loans allow you to tap into your equity without making any changes to your primary mortgage. This is great if you have a good rate on that mortgage, as it won\u2019t be affected. There are other loan options, like cash-out refinancing<\/a>, where repayment is folded into a new, refinanced mortgage. But both types of home equity loans have a separate, additional payment to your current mortgage.<\/p>\n\n\n

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Using your home equity is a great way to access low-cost loans for improvements, but make sure you know which type of loan is best<\/figcaption><\/figure>\n\n\n

Home equity loans explained<\/h3>\n\n\n\n

A home equity loan is a single lump sum of cash equal to the equity in the home. The borrower can then use this cash toward anything. This is best for a one-time major expense, often related to home improvement. But some homeowners choose to put the payment toward other major expenses like education, a wedding, or a medical emergency. <\/p>\n\n\n\n

These loans have a fixed interest rate determined by a borrower\u2019s credit score, the amount of the loan, payment history, and income. So depending on your financial situation, this may or may not be right for you. These loans are generally used for large cash payouts that a borrower intends to pay predictably over time. <\/p>\n\n\n\n

Pros: <\/strong><\/p>\n\n\n\n