Comparing Home Equity Loans, Mortgages, and HELOCs
When it comes to taking equity out of your home, there are three main options: home equity loans, second mortgages, and home equity lines of credit (HELOCs). Each option has its own pros and cons, so it’s important to compare all three before making a decision.
Home Equity Loans
A home equity loan is a lump sum loan with a fixed interest rate. You repay the loan over a fixed term, usually 5-15 years. Home equity loans are best for people who need a large amount of money all at once and who have a plan for how they’ll use it.
A second mortgage is a loan that’s secured by your home equity. The interest rate is usually fixed, but the loan term can be shorter or longer than a home equity loan. Second mortgages are best for people who need a smaller amount of money and who want the flexibility to make extra payments or pay off the loan early.
Home Equity Lines of Credit
A HELOC is a line of credit that’s secured by your home equity. You can borrow money as you need it, up to your credit limit. The interest rate is variable, and you only have to pay interest on the amount you borrow. HELOCs are best for people who need flexibility or who don’t know how much money they’ll need.