Big expense on the horizon — your home equity could help.
Are you looking for ways to finance an upcoming major purchase or other expense?Maybe you're thinking about:
- Making home improvements
- Planning a wedding
- Covering medical or dental expenses
- Paying college costs
- Consolidating debt
Whatever your need, the equity in your home may provide a perfect solution. In fact, using your home's equity can be one of the smartest ways to get the funds you need. Interest rates are typically lower than those of credit cards or conventional loans. And the interest you do pay may even be tax deductible.* To borrow against your home’s equity, you can pursue a home equity loan or line of credit. Read on for insights to help you decide what may be the right choice for you.
Home Equity Loan
What is it? A home equity loan gives you a set amount of funds at one time. The amount you qualify to borrow is based on a percentage of your home's value. The value of your home minus the amount of mortgage you still owe equals your home equity. With a home equity loan, your interest rate and monthly payment are fixed for the life of the loan. You begin repaying the loan immediately, and the set payment includes the principal plus the interest charged on the full amount borrowed.
The benefits: You enjoy peace of mind. You have a set amount of funds to put toward your goal, and the terms are set. Your payments won't change, and you have a specified number of payments with a set end date.
Best for: If you're borrowing for a single expense, like a kitchen remodel, a wedding, a one-time medical treatment or debt consolidation, this may be the right option for you.
Home Equity Line of Credit
What is it? A HELOC is a revolving line of credit, similar to a credit card. You can use the money as you need it up to a predetermined limit by writing a check or transferring funds. You repay the debt in monthly payments that can range from the minimum due to the full balance. You accrue interest only on the funds you use, regardless of your loan limit. Rates are typically variable.
The benefits: A HELOC offers the flexibility and convenience of ongoing credit. You can access any amount within the pre-approved limit, and it's available when you need it.
Best for: This option may be better suited for ongoing expenses, such as college tuition or paying for braces. It can also be a good choice if you want a financial safety net that can be accessed quickly and easily.
While they each have their particular benefits, both home equity loans and lines of credit can offer you a financially sound option when you need to finance some of life's major milestones, emergencies and events.
* Consult with your tax adviser regarding the deductibility of interest
- 8 home improvement projects that deliver high returns.
- What to know about using a home equity line of credit.