Home is where your heart is, but according to a recent survey, it’s also the heart of your investment portfolio. It’s worth a lot of money and can be an asset that you strategically use to your advantage. To do so, you have to make sure that you take steps to protect that investment. Otherwise, you increase your risk of foreclosure or power of sale.
Canadians typically use their homes as stepping stones to their investments. A home is an asset that’s valuable in the ways you use it strategically. It helps you reach your goals. That’s why you need to know how to protect it if you want it to continue serving you well. Home equity loans and home equity lines of credit are different ways of doing that, but it is important to know how they differ. Here are the steps you need to take when comparing a home equity loan to a HELOC.
Home Equity Loan vs HELOC: Which Should You Choose?
What is a Home Equity Loan?
A home equity loan is a loan that’s secured by the equity in your home. That means it’s backed by the value of your home and your mortgage. The amount you can borrow depends on the value of your home and your mortgage. It’s usually a fixed-rate loan where you can borrow 80% to 85% of your home value. That means that with a $100,000 home, you can borrow $80,000 to $85,000. You have to repay it over 10 to 15 years.
What is a HELOC?
A home equity line of credit, or HELOC, is similar to a loan. It’s unsecured and doesn’t require any collateral. It enables you to borrow money in as little as $2,500 increments. You can access that money when you need it up to your line of credit limit. It has variable interest rates, so they can change over time.
Because of the way a HELOC works, you pay interest only on the money you borrow. When you borrow money, it’s called a draw. You don’t pay interest until you take a draw. You repay the borrowed amount and the accrued interest. That’s why they are often called “interest-only loans.”
That means that when you take a HELOC, you pay just interest, which is usually much more affordable than a loan. HELOC rates are usually lower than for a home equity loan, and you can use them for other purposes. It’s also a way to use your home as equity to fund renovations, consolidate debt, pay for education and more. It’s a revolving line of credit. That means you can draw money as you need it and repay it when you can.
You have to pay interest on a HELOC whether or not you have a draw. The interest rates for both the home equity loan and HELOC may be fixed or variable. You can choose either to suit your needs.
Which Should You Choose?
A HELOC is better than a home equity loan if you want to save money, and you don’t need all the money immediately. The interest is less expensive, so you save money on interest. That’s especially true if the rates are variable. That’s also true if you want flexibility with the money. You can access the money as needed with a HELOC, whereas you must take the loan amount in a home equity loan.
But a home equity loan is better if you need an immediate source of emergency cash. If you are in dire straits, a home equity loan is available to you immediately. Because it’s a secured loan, you don’t have to jump through hoops to get one when you need it.
If you are looking for a home equity loan in Ottawa, come to Ottawa Mortgage Services. We provide mortgage agent services for first-time homebuyers, self-employed individuals, commercial clients. We also helps with refinancing, pre-approvals, and debt consolidation.