7 Considerations When Deciding Between a HELOC vs. Equity Sharing Agreement vs. Home Equity Loan
If you're a homeowner, you may be able to tap into the equity you've built up in your home to get the funds you need for a major project or purchase. But how do you do that? There are a few different ways, each with its own pros and cons. Here are seven things to consider when deciding whether a home equity line of credit (HELOC), equity sharing agreement, or home equity loan is right for you.
1. How much money do you need?
The first thing to consider is how much money you need. If it's a small amount, a home equity loan may be the best option. If you need a larger amount, you may want to consider a HELOC. Keep in mind, with a HELOC, you only borrow what you need and only pay interest on the amount you borrow.
2. How long do you need the money?
Another thing to consider is how long you need the money. A HELOC typically has a 10-year draw period, during which you can borrow money as you need it, up to your credit limit. At the end of the draw period, you'll need to repay the outstanding balance. A home equity loan, on the other hand, is a lump sum that you'll need to repay over a fixed period of time, usually 5 to 15 years.
3. What are the interest rates?
Interest rates are another important consideration. HELOCs typically have variable interest rates, which means they can go up or down over time. Home equity loans usually have fixed interest rates, which means the rate will stay the same for the life of the loan.
4. What are the fees?
HELOCs and home equity loans both have fees associated with them. These can include closing costs, appraisal fees, and origination fees. Be sure to compare the fees associated with each type of loan before making a decision.
5. What is your credit score?
Your credit score is an important factor in deciding which type of loan is right for you. A higher credit score may give you access to better terms and rates on a home equity loan. A lower credit score may mean that a HELOC is your best option.
6. What is your income?
Your income is another important factor to consider when deciding between a HELOC and a home equity loan. A HELOC may require that you have a certain amount of income in order to qualify. A home equity loan may not have this requirement.
7. What are the risks?
Before taking out any type of loan, it's important to understand the risks involved. With a HELOC, the biggest risk is that your interest rate could go up, which would increase your monthly payments. With a home equity loan, the biggest risk is that you could end up owing more than your home is worth if the value of your home decreases.
No matter which type of loan you decide is right for you, be sure to shop around and compare offers from multiple lenders before making a decision.