Some homeowners don’t realize it, but they have a powerful financial tool right at their fingertips: home equity.
Home equity is the difference between the home's value and the mortgage balance. A home equity loan or line of credit can help you achieve dreams immediately instead of years down the road, and can serve as an alternative to a personal loan, allowing you to pay for major expenses such as home improvements or college tuition. Horizon Bank is a one-stop-shop when it comes to home equity loans, and offers options to suit client needs, be it a term loan or home equity line of credit (HELOC). Plus, Horizon is a valuable resource when it comes to understanding the two options, and whether one of them is right for you.
With Horizon Bank’s help, we’ve broken down the basics of home equity loans and HELOCs.
Unlike traditional loans, a home equity loan or HELOC uses your home as collateral for borrowing. They make for a great source of cash for homeowners, and often have shorter terms than a mortgage and lower interest rates than personal loans and credit cards. The credit limit on a home equity loan is a percentage of the home's appraised value, subtracting from that the balance owed on the existing mortgage.
So, between the term loan and the HELOC, how do you decide which one to use? Here are some helpful Q & A distinguishers:
Q: What is the difference between a home equity loan and a HELOC?
A: A Home Equity Loan is a fixed-term loan in which your home serves as collateral. A Home Equity Line of Credit is a form of revolving credit.
Q: Why choose one over the other?
A: For predictable repayments on major expenses such as a home addition, dream vacation, even debt consolidation, a fixed-rate, fixed-term loan is a good choice. For long-term flexibility in borrowing and repayment, a HELOC is more suitable. Whether working little by little on home improvements or paying college tuition bills, you get to decide when and how much to borrow.
Q: How do the payments work?
A: Home equity loans offer fixed monthly payments throughout the term of the loan. A HELOC offers variable monthly payments based on how much of the line you use.
Q: How can I access my funds through these options?
A: When you opt for a home equity loan, the entire amount is given to you in a lump sum when you get your loan. With a HELOC, you can access funds as you need them using your line of credit checks, transferring funds online or at a local Horizon office.
Borrowing against your home’s equity allows homeowners to access cash without racking up huge a balance on your credit card. Above all, a home equity loan or HELOC is a great choice when you have one large expense that you need to take care of in a short term. Whether you need a lump sum payment or a flexible repayment plan, a home equity loan or HELOC can be an inexpensive and easy way to borrow.
For more personalized advice, one of Horizon Bank’s advisors can help you determine if one of these options is suitable to your financial situation, and your need for funds. Stop by your local branch or schedule an appointment to discuss your current circumstances. Visit www.horizonbank.com for more information.