7 HELOC vs. Home Sale Considerations: Pros & Cons
You’ve built up equity in your home and now you’re ready to cash in. But should you take out a home equity line of credit (HELOC) or sell your property outright? Here are seven considerations to help you make the best decision for your situation.
1. How long do you plan on staying in your home?
If you plan on staying in your home for the foreseeable future, then a HELOC may be the better option. This is because with a HELOC, you can borrow against your equity but still keep your home as collateral. If you sell your home, you no longer have any equity stake in the property.
2. How much money do you need?
If you only need a small amount of money, then a HELOC may be more advantageous since you can take out as much as you need and only pay interest on the amount that you borrow. With a home sale, you’d have to sell your property for more than what you owe on the mortgage in order to have any money to show for it.
3. What are current market conditions like?
If housing prices are rising, then selling your home outright may fetch you a higher price than if you were to take out a HELOC. On the other hand, if prices are stagnant or on the decline, then a HELOC may give you more flexibility since you can choose to only borrow what you need now and leave the rest for later.
4. What is your credit score?
Your credit score will affect the terms of your HELOC. If you have a good credit score, you’ll likely qualify for a lower interest rate. However, if your credit score is poor, you may not qualify for a HELOC at all. In this case, selling your home outright may be your best option.
5. What are the fees associated with each option?
Both a HELOC and a home sale come with their own set of fees. With a HELOC, you’ll likely have to pay closing costs as well as an annual fee. When selling your home, you’ll be responsible for real estate commissions as well as any repairs or upgrades that need to be made in order to make your home more marketable.
6. What are the tax implications?
The tax implications of a HELOC vs. home sale also need to be considered. With a HELOC, the interest you pay is tax-deductible. However, if you sell your home, any profits you make may be subject to capital gains tax.
7. What is your financial situation?
When making the decision between a HELOC and a home sale, it’s important to consider your overall financial picture. If you have other debts that need to be paid off or if you’re self-employed and your income is variable, then selling your home outright may give you the lump sum of cash you need to get your finances in order. On the other hand, if you have a stable income and good credit, taking out a HELOC may be the better choice since you can spread out your payments over time and only pay interest on the amount that you borrow.