What is the Difference Between a HELOC and a Home Equity Loan?

July 6, 2020 | Posted by: Sherry Corbitt

By: Ryan Tuckett

Renovations seem to be on everyone’s mind this year with all of us spending more time at home. There are several ways you can upgrade your home with renovations without disrupting your cash flow or dipping into your investments. You could save the old fashion way, but if you are anything like me, you aren't patient enough to wait years for results. You could  try cutting cost by doing the labor yourself which again, if you are like me, you will have no idea what you are doing or where to start. Two very popular options are Home Equity Loans and HELOC's (Home Equity Line of Credit). Although both sound the same they do have different conditions. Here is the differences between the two and what they could mean for you in the short term and long term.

Home Equity Loan are a type of loan based on credit scores, repayment history and how much equity is in the home. The home equity loans  have a fixed interest payment as well as a fixed term, making payments more predictable over the course of the loan. Think of it similar to a car loan, where the payments have a term and rate that you work to lower until paid off. A home equity loan is a good choice if you know exactly how much money you're going to need and you receive it all in one lump sum. Some things the home equity loan is generally used for:

  • Renovating your home
  • Higher education
  • Debt consolidation
  • Large purchases

Heloc's are a secured line of credit, guaranteed  by the equity in your home. A heloc is like a credit card in the sense that its an agreed upon amount you can withdraw all at once or over the long term. The benefit to a Heloc is that you can pay it down in large lump sums or make just minimum interest only payments. Also, you can re-access the available room at any time. For example on a $50,000 Heloc, you could pay it down to $20,000 but then re-access the other $30,000 should something come up. The downfall to a Heloc is that for some people it is tempting to only pay back the interest and not have a set amount with a payout plan in mind like a Home Equity Loan. Some things the heloc loan is generally used for:

  • Stocks
  • A gift for your children to use as a down payment for their home
  • Long term higher education
  • Emergency fund
  • Debt consolidation
  • Large purchases
  • Renovating your home
  • Vacation

Although all mortgages and loans come with a risk, as long as you are educated on the type of loan you are getting and use it responsibly you could have a stronger peace of mind and be bettering your future at the same time. Drop a comment down below and let me know what you think of these two options.

You can reach Ryan by email at ryan@homelifemortgages.ca to discuss your potential home renovation needs!

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