Why Is A Home Equity Line Of Credit Better Than A Home Equity Loan?
03/17/2022
A home equity line of credit (HELOC) is a powerful tool for homeowners. Unlike home equity loans, when you open a HELOC you don’t have to justify your plans for the funds and can use the money as you see fit.
Need to repave your driveway, repaint your home, or send a child off to college? A home equity line of credit can help!
Let’s take a look at other benefits of opening a HELOC.
THEY OFFER FLEXIBILITY
When you take out a home equity line of credit, you're able to access the funds when you need them in the amount you need, and you only pay interest on what you've borrowed. This flexibility makes them helpful in covering ongoing costs over time.
Another benefit to taking out a home equity line of credit is that you can repay the principal whenever you like. For example, if you need a short-term loan to cover tuition while you're waiting for financial aid funding, you could take a draw on your line of credit, pay the interest for a little while, and then pay off the balance once you receive your funds.
You may not need the cash now, but a HELOC can provide you peace of mind as it provides you with a credit line available for emergencies at a competitive interest rate.
GET CASH QUICKLY
Need money in a hurry? A home equity line of credit will generally process faster than a home equity loan if you need financing quickly.
Depending on your situation, you may be able to close your line of credit in fewer than two weeks, whereas a home equity loan could take as long as six weeks. Of course, the actual closing time will likely fluctuate based on the amount you borrow, your property values, and your credit score.
LOW COSTS AND RATES
Another advantage of a HELOC is its low closing costs and interest rates. If your credit is good, there's a chance your lender may waive closing costs altogether.
In addition, because your home equity secures it, a home equity line of credit offers lower rates than credit cards or personal loans. While the rate can vary over time, HELOCs generally provide a lower rate than a standard home equity loan.
Because a HELOC is a type of mortgage, the interest paid on up to $100,000 in loan principal is tax-deductible for most borrowers who itemize. In addition, you'll have some protection if interest rates rise because your line of credit will be limited to how high its interest rate can climb.
Because a home equity line of credit typically carries an adjustable rate of interest, you won’t be able to predict what your payments will be in the future. You should know that HELOCs are legally required to provide a lifetime rate cap that limits how much their rate can change over time.
It's good practice to inquire about the lifetime cap before you agree to the loan, as well as feel confident that you'll be able to afford the monthly payment if it maxes out.
Are you thinking about opening a home equity line of credit? INOVA Federal offers HELOCs with premium rates and offers attentive, local, and friendly support from start to finish. You can apply for a HELOC online today. If you have questions about how a home equity line of credit can help you, stop in and see us at one of our convenient locations, or visit our online Support Center.