Home Equity vs HELOC

[cycloner29]

I read a lot on both. Each has their positive and negatives. I just don't know as much on HELOC compared to home equity loan. Sure a HEL has a little lower interest rate and the HELO is just a tad higher rate wise but it is a variable rate. Any input would be appreciated just to get some more knowledge on them. TIA!!

 

[BCClone]

I read a lot on both. Each has their positive and negatives. I just don't know as much on HELOC compared to home equity loan. Sure a HEL has a little lower interest rate and the HELO is just a tad higher rate wise but it is a variable rate. Any input would be appreciated just to get some more knowledge on them. TIA!!

One is a second mortgage and the other is a line of credit, hence LOC. at least that is my understanding

 

[trevn]

Home equity loans have a more structured repayment stream, so it's easier to budget. HELOCs are billed like a credit card, just using your home as collateral. They don't amortize and have a minimum monthly payment. It's great for flexibility, but not great if you're not very disciplined from a budgeting or repayment standpoint.

There are all kinds of different products out there, but generally speaking, home equity loans are fixed rates and HELOCs are variable rates tied to an index like Wall Street Journal Prime.

 

[st8cydr]

A HELOC will give you the flexibility to borrow money as you need it, usually over a 5 year draw period (that can be subsequently renewed). A home equity loan is a one time advance. HELOCs are great for remodeling projects, tuition (if you haven't been able to save) or other recurring funding needs, or if you anticipate needing to borrow money for various items over the draw period. You only pay interest on what you've borrowed, not the credit line. With a home equity loan if you need additional funds the whole loan needs to be redone.

 

[Jayshellberg]

A HELOC has a replenishing feature, similar to a credit card. When the borrower pays down the principal, they can re-borrow up to the amount of the line. Plus, you only pay interest on the amount advanced. On a HEL, the full amount is advanced the day the loan is originated, the borrower can’t re-borrow as they pay down the loan, and interest is charged on the full amount of the loan.

The replenishing feature makes the HELOC much more flexible than a HEL. However, as you stated, the HELOC might carry a slightly higher rate. Plus, a HELOC requires a higher level of discipline from the borrower because the required payments won’t amortize or pay off the line as quickly as a HEL.

 

[mkadl]

I read a lot on both. Each has their positive and negatives. I just don't know as much on HELOC compared to home equity loan. Sure a HEL has a little lower interest rate and the HELO is just a tad higher rate wise but it is a variable rate. Any input would be appreciated just to get some more knowledge on them. TIA!!

We got in a HELOC with BMO in about 2007-08 or 9. Remodeled. Its been paid off since 2016 and still good until 2029. At the time I was a 100% commissioned sales person and income was not steady monthly, but consistant year to year. The minimum monthly payment was $100.00. That came in handy 2-3 times. I believe it is maximum interset at 8%. I am guessing that is where the rate is at now. (with ours). I dont know if BMO still offers it or not.

 

[trevn]

The thing about HELOCs is understanding how the program works. One of the docs you receive when applying for a HELOC is a program disclosure that tells you how your rate works, a history of the rate index used if it’s a variable rate product, what the draw period is, typical fees associated with the loan, and how your minimum payment is derived, among other things. As others have said *usually* they are variable rates (there are fixed rate HELOC products though) and *usually* minimum payments are interest only (I’ve seen some programs that calculate a minimum payment differently).