For Thornhill homeowners it can be confusing when trying to determine if a home equity line of credit or a home equity loan is a better option. Here’s an overview of the product differences:
• Home equity line of credit: This product allows you to have more of a revolving line of credit that you can use when you need it. Similar to a credit card, you’ll have a minimum monthly payment, but of course can pay more than the minimum if you’d like.
• Home equity loan: You borrow a set amount of money in one lump sum and pay back according to the terms agreed upon with the lender. There will most likely be a fixed rate that you lock onto when you sign the paperwork, meaning your payment remains the same throughout the life of the loan.
The downside to both loan programs is that they use your home as collateral, meaning that if you default on the loan for any reason, your home could be put at risk.
A home equity line of credit for Thornhill homeowners has its advantages over a home equity loan if you prefer to withdraw money only when you need it.
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Home Equity Line of
Credit
A home equity line of credit (HELOC) is
issued much like a credit card, with a limit. While some lenders issue annual
HELOC fees for having an account open, others simply charge as you spend the
money, with accrued interest. As you pay down the limit, more funds become
available, and so on. A home equity line of credit in Thornhill allows
borrowers to use the money for whatever they wish.
Home Equity Loan
A home equity loan offers a homeowner up to 85 per cent
of their home’s current equity in the form of a large lump sum loan. Interest
is accrued and a monthly payment structure is set up, just like a standard
mortgage loan. However, instead of a standard home loan, money from a home
equity loan can in most instances be used to pay for anything like home
improvements or an education fund. In most programs, there are no restrictions.
When HELOC Make the
Most Sense
Both HELOCs and home equity loans have their advantages and
disadvantages, there are certain situations where a HELOC is a smarter
decision. HELOCs are best utilized by homeowners who might need a large amount
of money over a span of time-such as for:
- Post-secondary tuition;
- Home remodelling;
- Other projects that require long-term payments.
HELOCs act in much the same ways as credit cards, but with a
few distinct advantages. First and foremost are the interest rates, which are
often significantly lower than standard credit card fees and rates.
A home
equity line of credit is often the preferred choice for Thornhill homeowners
over a home equity loan.