Getting into debt is unavoidable these days. Although most people wish that their debt will always be within their control and remain manageable, circumstances can change to make managing finances a lot more challenging. This is why one of the most popular types of home equity loans is getting a HELOC.
A HELOC is popular because it is a very flexible type of home equity loan. It allows homeowners to borrow money from their home equity at a very reasonable rate and terms. Perhaps the only con with a HELOC is that it is not as easy to apply for as other types of home equity loans. The good thing about it is that since it gives homeowners access to a revolving line of credit, borrowers can attain a certain degree of freedom without having to keep applying for a loan.
Different Home Equity Loans
Home equity loans come in two forms, as a HELOC, and as a fixed-rate loan. A fixed-rate home equity loan means that an outstanding HELOC’s balance is locked to a fixed interest rate for a term of 1 to 5 years. Some homeowner choose this type of home equity loan because they like having peace of mind knowing that they won’t have to deal with increases in mortgage interest rates. A HELOC or a home equity line of credit works like a credit card in the sense that a homeowner is given a credit limit and the credit in it can be reused for a specific time frame because it is a revolving type of credit. The repayment is based on fluctuations in mortgage interest rates and the type of HELOC a homeowner can qualify for.
Most of the time, home equity loans are taken as loans with fixed interest rates or as a home equity line of credit. They differ in structure and in how the homeowner can access the funds. Fixed-rate home equity loans are given as a lump sum while a homeowner can access funds from a HELOC as often as he/she wants.
Is a HELOC a Good Choice?
Because a HELOC comes with a fixed spending limit based on the homeowner’s equity on a specific property and is a revolving type of credit, it is easier to control and can be used as needed. It also gives homeowners a more flexible repayment schedule with rates that are based on current market interest rates. Borrowers like the zero time-based limitations plus the freedom a HELOC provides.
With other types of home equity loans, it is easy for homeowners to rely on debt and just fall into a cycle of borrowing and spending. A HELOC helps with preventing that. Of course, a HELOC may not be the home equity loan of choice for everyone. This is why it is best to consult with mortgage professionals like us in Mortgage Central Canada to assess which type of home equity loan might be best for your specific financial needs. Contact us at your earliest convenience and let’s discuss what we can do for you to access your home equity the smart way.