What to Know About Home Equity Loans

 When looking for housing, you may be tempted to rent a place since it’s often cheaper. However, homeownership comes with many benefits. You own an asset that actually increases in value. And with homes currently selling at record prices, your home may be worth more than you think. However, you can use this increase in value to your advantage without selling your home.  

You can access your home’s value with a home equity loan or line of credit. With a loan, you get all the money upfront. With a home equity line of credit (HELOC), you are given a line of credit and you access it as needed, like a credit card.

If you are interested in home equity loans, the Empower Group can help you with the application process.

Home Equity Loans vs. HELOCs

When deciding to access your home’s equity, you have two main options: home equity loans and HELOCs. A home equity loan offers a certain amount of money, just like a personal loan. You may be able to access up to 85% of your home’s equity. What this means is that if your home has $100,000 in equity, you can get up to $85,000. However, the actual amount you’ll qualify for will depend on factors such as income, credit score, and credit history. 

Once you are approved for the loan, you will repay it every month for a certain number of years. These loans can range from 5-30 years. These loans are predictable. The interest rate is fixed, so you pay the same amount every month. It is important to ensure you repay the loan as agreed. A home equity loan is often called a second mortgage because it is using your home as collateral. Therefore, if you don’t make timely payments, you could lose your home.

A HELOC, on the other hand, is a revolving line of credit, much like a credit card. If you have a line of credit for $25,000 and make $5,000 in purchases, you would still have $25,000 to spend once you pay off the $5,000. You would be able to use this money as needed, although it won’t be deposited into your bank account, like a home equity loan. You use checks or credit cards to access the money.

HELOCs also have two distinct periods: a draw period and a repayment period. During the draw period, you can withdraw money. This period typically lasts for 10 years. Then the repayment period begins. This often lasts for 20 years. You cannot take out any more money at this time.

A HELOC does still use your home as collateral. You need to make timely payments if you want to keep your home. Keep in mind that your payments could vary each month, depending on your balance and interest. Payments on a $5,000 balance will be much lower than payments on a $20,000 balance. Also, HELOCs have a variable interest rate, so they could increase or decrease over time. 

Before applying for home equity loans in Texas, you should understand the pros and cons so you know what you’re getting into. Which is better: a home equity loan or a HELOC?

Home equity loans are advantageous because you get all the money in your account at once and repayment is predictable. You pay the same amount of money every month, unlike HELOCs, which can fluctuate. However, the interest rates are higher because they are fixed. 

HELOCs are good because they allow you access to money for 10 years. This can help pay unexpected expenses or have available cash in the event you become unemployed, for example. Plus, you only pay interest on the amount of money you use, so you save money. 

However, many people don’t use HELOCs wisely. Because they continually have access to all this cash, they use them for nonessential purchases. This causes them to go further into debt. Also, HELOCs aren’t guaranteed. If the market dips or your income decreases, your line could be frozen, preventing you from accessing any more money.

Your house increases in value over time, and this equity can be used to your advantage. If you need cash to pay bills, college tuition, or home improvements, you may be able to access extra cash with the help of home equity loans in Texas. Contact The Empower Group today to start the application process.