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Line of credit vs. loan, that’s the question for many homeowners right now. If you’re looking to take advantage of your equity, you need to know the best route for your needs. Here’s what you need to know about the key differences between these two types of funding.
A home equity line of credit, or HELOC, is like a credit card that’s revolving and secured by the equity in your home. A lender advances you an amount determined by how much you need, your debt-to-income ratio, your credit score, and the amount of equity you have in your home. You can use the line of credit over and over up to the credit limit if you continuously pay on the amount used. You can use the funds for any purpose without restrictions. Two benefits include an interest rate generally much lower than standard credit card rates.
A home equity loan, often referred to as a second mortgage, is another way to secure cash from your home in the form of a loan. Instead of a revolving amount you get with a line of credit, a loan is a one-time lump sum. Like a HELOC, how much you need, your credit, debt, and home equity determine the loan amount. The interest rate is usually lower than on a line of credit but closing costs can occur.
Do you have equity in your home and need cash for a trip, college tuition, home repair, debt consolidation, or other expense? To find out more, be sure to talk to a lending professional. The team at Midland Mortgage Corporation is waiting to help you with your loan needs.