Would you like to know how to access your Home Equity without Changing the Interest Rate on your Mortgage so that you can consolidate some debt, make home improvements, build an ADU in your backyard and use it as a rental space, or even purchase a new rental property?
If so keep reading because I’m going to tell you about the two Home Equity products that will allow you to do this: HELOCs and HELOANs.
A HELOC is shorthand for “Home Equity Line of Credit”. It is defined as a line of credit in which you use the equity in your home as collateral. A HELOC is often called a “Revolving” line of credit because you can take money out, pay the debt on the loan down, and take money out again, with frequency and ease.
Lines of Credit such as these are also called “Open Lines of Credit”. A credit card is another example of a “Open” or “Revolving” line of credit. Here’s some additional information about HELOCs you’ll want to know so that you can determine whether they’re right for you:
- The amount of money you can borrow with a HELOC depends on how much equity you have in your home.
- They are set to prime rates and as such their interest rates are VARIABLE and are always fluctuating. This can be a risk if you are relying on them too heavily and are short on income as your monthly payments may become unmanageable.
- A HELOCs may be suspended by the bank during an economic recession. Again, this does make them relatively more volatile to use compared to other financial products.
- These loans work for work well if you need to withdraw varying amounts of money at varying points in time.
Ok, now that’s the HELOC. Now let’s talk about:
HELOANs. The word “HELOAN” is shorthand for “Home Equity Loan”. A HELOAN is a large sum of home equity cashed out all at once. And once you take this money out and pay it back again you cannot take it out again. It is what is known as a “CLOSED line of credit”.
- Unlike the HELOC the interest rate on a HELOAN is FIXED and it does not change!
- Includes a scheduled due date for paying off loan, just like a regular home mortgage.
- Is Considered a second mortgage.
- Best for “taking out a specific amount of money for a specific purpose”
Here’s what HELOCs and HELOANs have in common:
- Both use your home as collateral, placing you at risk of losing your home if you are unable to make payments
- Both are collateralized against your home and as a result they usually offer higher credit limits and better interest rates than a credit card.
- And funds from each are considered eligible for down payments towards other properties.
And just so the distinctions between the two *really* sinks in, Here are the key DIFFERENCES between HELOCS and HELOANS:
- A HELOC is flexible in terms of how much money you take out, when you take it out, and when you pay it back. A HELOAN is predetermined in regards to how much money you are taking out and when you are expected to pay it back.
- A HELOC is a Open Line of Credit. A HELOAN is a closed line of credit.
- A HELOC has a VARIABLE interest rate. And a HELOAN has a FIXED interest rate.
Do you live in Colorado? And are looking at performing an equity cash out? Or to buy a new home? If so I’d love to offer you a free mortgage consultation!
As a wholesale mortgage broker I can shop your loan amongst FORTY different lenders, use our systems to determine which lender and which mortgage is the best fit for you, waive processing fees, and do all kinds of things for you that the banks and other guys can’t or won’t be willing to.
I’d love to make this wild housing market less confusing and intimidating for you. And I like talking! Give me a call, an email, or text, whatever you’re comfortable with, using the information provided on the following screen. I’m really looking forward to chatting with you!
-- Joe Fox
Licensed Mortgage Broker
NMLS #891464
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