As a Toronto & Brampton Mortgage Agent, I get asked a lot of questions when it comes to mortgages. One I recently got was what is better, a line of credit or home equity loan. Read on to find out my answer.
What is a home equity loan?
A home equity loan or also referred to as “ the second mortgage” is a type of loan with a fixed and low-interest rate, which makes it a good source of money. A home equity loan is much easier to include in your budget as the payment is the same for every month.
What is home equity line of credit?
A home equity line of credit (HELOC) and home equity loan are the same in the sense that you will borrow money against your home equity. However, a home equity loan normally gives a total amount at a single time, while a home equity line of credit is the same with a credit card: You will have a definite amount of money for you to borrow and then pay back, and you can get the amount anytime you need it. Therefore, your minimum monthly due varies as a credit line normally has a fluctuating interest rate. It is important to take note the terms in your HELOC as most likely you will have a limited time to use the money.
Which is better?
Appropriating funds against your equity can be helpful in financing any projects that you may have. It is also possible for you to deduct the interest so it will be more inexpensive. So before you decide to for HELOC against a home equity loan, take into considerations the amount of money that you will need and how you’re planning to use the money. Consider the appraisal and closing fees, tax advantages, interest rates and monthly payments as you assess your options.
- Home equity loan is great for attaining more costly goals, like college tuition fees, remodelling a house and debt consolidation. Due to its fixed payment, it is more practical for individuals with fixed incomes.
- Home equity line of credit is great for paying for medical expenses, minor home improvement projects and paying bills that will quickly increase if not paid.
If you require a financial help to pay your bills or attain your goals, you can go for low-interest funding. May it be home equity loan or a line of credit, you can utilize the value of your property as a mean to manage your debt and improve or sustain your lifestyle.
If you have any other questions regarding your mortgage in Toronto or Brampton, please contact me and I’d be happy to assist.