Which Mortgage Loan Suits You Best?

When you make the decision to tap into your home equity, there are many options available to do this. Home equity and its value are thought of as illiquid, meaning you can�t move them from one place to another as you can say with cash. If you want to utilize your home�s value, tapping into your home equity is essential. The most common ways people utilize their home equity are through traditional home equity loans or home equity lines of credit. Each loan type has its own pros and cons and it is up to you to determine which one fits your needs.

Traditional Home Equity Loan

The traditional home equity loan is often called a fixed-rate home equity loan because the APR is set and will remain the same throughout the life of the loan. This type of loan generally provides the borrower with a set amount of cash to be used for a variety of purposes. While the APR will be higher than the original mortgage rate, borrowers typically find it useful for paying off credit cards because the interest rate is usually lower. You can borrow up to 100,000 dollars with this type of loan.

Home Equity Line of Credit

This type of loan is often referred to as a HELOC. This loan operates more like a credit card and can be good for consumers who may need multiple infusions of cash over a period of time. Sometimes they actually come with credit cards. Consumers often use this for paying biannual tuition fees, annual trips, and the like. The interest rate on this type of loan is variable and will go up and down just like a credit card. The major difference is that a HELOC has a fixed term and the loan must be paid in full by the end of the term. Some consumers find this to be the most difficult part and are unprepared for the huge amount due at the end of the HELOC term.

Choose What is Right for You

Try to create a financial plan for yourself and your home equity loan. Envision what you need and want to get out of your loan. After you examine all the aspects of your financial needs and future, decide on which type of home equity loan will be right for you. Remember, home equity lines of credit are useful if you are going to need multiple infusions of cash over time. This would be a cheaper option than taking out multiple fixed rate loans. However if you have a one time expense, such as paying off credit cards or a home improvement project, the fixed-rate loan may be the best option for you. Make sure you think of all the expenses that you may need to cover so you make the right decision and take out enough money to cover everything that you plan to pay for with the loan.