Types of Home Equity Loans
For most people, their home is their single largest asset. It can also be a powerful financial tool, according to the mortgage experts at Canadalend.com. Tapping the equity you have built up in your home gives you greater access to a wide range of borrowing options.
Where traditional loans and other forms of unsecured credit are always an option, using the equity you have built up in your home is a great way to borrow money when needed.
If you want access to a low-interest, revolving line of credit, a home equity loan might be right for you.
There are two primary types of home equity loans: a fixed-rate loan and home equity line of credit (HELOC). Although people use the terms interchangeably, home equity loans and HELOCs are structured very differently.
A fixed-rate home equity loan provides a one-time lump sum payment up front that gets paid back monthly over an agreed upon time frame at a fixed interest rate. The concept of a HELOC is a little like a credit card; you qualify for a set spending limit based on the equity you have built up in your home that you can access any time you like.
Benefits of a Home Equity Loan
There are many reasons why a homeowner would chose one home equity loan over another.
Some borrowers like fixed-rate home equity loans because the interest rate and payments stay the same. With a fixed rate loan, a homeowner takes the loan as a lump sum payment, which is then repaid over an agreed upon time frame; popular terms are three, five, 10, or 20 years.
A fixed-rate home equity loan is also popular because it comes at a rate lower than most personal loans and credit cards. Interest rates are based on a number of factors, including income, credit score, and payment history. Because it’s fixed though for a closed term, borrowers don’t need to worry about hikes in the interest rate.
A HELOC can be a great choice for homeowners who have built up a lot of equity in their home. It’s also great for those looking for continuous access to the equity. A HELOC has a flexible payment schedule, and the interest rate, while higher than the first mortgage, is significantly lower than what you’d pay on a credit card or other unsecured consumer loans.
Ultimately, it’s important for homeowners to do their research when deciding whether or not a fixed income loan or HELOC is right for them. Dealing with banks can be difficult and stressful, so it’s also important to know that interest rates and other factors vary wildly from bank-to-bank. The independent agents at Canadalend.com will search hundreds of different lending institutions across Ontario to make sure you get the one best suited to your short- and long-term financial and lifestyle needs.