HELOC or HELOAN: What’s the Difference?

Did you know you can access your home’s equity without selling your home? A home equity line of credit (HELOC) and a home equity loan (HELOAN) are both types of financing that allow you to borrow against the equity you’ve built in your home. With the money you receive from these home equity options, you have the flexibility to tackle home renovations, consolidate debts, invest in education or meet other financial goals that are important to you.

What’s home equity?
Home equity refers to the portion of your property that you truly own. It’s the value of your home minus what you owe on your mortgage. At closing, the only equity you have in your home is likely from your down payment. But every time you make a mortgage payment, you reduce your debt which may build your home equity. The second way to boost your home equity is if your property’s value goes up. If the housing market is doing well or you make improvements to your place that make it more valuable, your home’s worth can increase. HELOCs and HELOANs are two common ways homeowners access their home equity.

What’s a HELOC, and what are the qualifications to get one?
A HELOC is a line of credit secured by your home. You can use your revolving credit line to tap into the equity you’ve built up in your home for large purchases such as tuition, renovations and emergency expenses. Since HELOCs rely on your home’s equity, you can’t borrow more than the value of equity in your home, which is the appraised value of your property minus the remaining balance on your mortgage.

With a HELOC, you have the flexibility to borrow and repay as needed, and you’re only charged interest on the outstanding balance. For example, if you have a HELOC limit of $50,000 but only use $20,000 for a home improvement project, you’ll only pay interest on that $20,000 rather than the entire $50,000.

In addition to your credit history, your income, debt, employment situation and other factors relating to your ability to repay the loan will play a role in qualifying for a home equity option.

What’s a HELOAN, and who qualifies?
A home equity loan (HELOAN) provides up to 95 percent of your home’s equity as a piggyback second mortgage. The HELOAN is an additional loan you take out on top of your existing mortgage, which results in two separate loan payments. In contrast, a cash-out refinance transforms your first mortgage into a completely new mortgage.

A HELOAN offers flexible loan terms and fast funding. Credit scores as low as 640 may qualify for a HELOAN.

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