❔Should You Get a Home Equity Loan or HELOC?

As a homeowner, you’ve likely built some equity in your home over time. Have you ever thought about using that equity to fund a big project or major expense, especially if cash flow is tight?

A home equity loan or home equity line of credit (HELOC) can provide the funds you need for a home addition, starting a business, consolidating debt, or other major expenses. But it’s important to remember—your home is not a personal ATM. Use these options wisely, and always consult a financial advisor before making a decision.

What’s a Home Equity Loan?

Your home’s equity is the difference between its market value and what you still owe. For example, a home worth $250,000 with a $200,000 mortgage has $50,000 in equity.

A home equity loan (sometimes called a second mortgage) lets you borrow a lump sum based on your equity and other factors like income. You’ll repay a fixed monthly amount at a fixed interest rate over a period usually between five and fifteen years.

What’s a Home Equity Line of Credit (HELOC)?

A HELOC is a credit line based on your home’s equity, working much like a credit card. You can withdraw funds when you need them over the life of the loan, often around 10 years. You only pay interest on what you withdraw, not the full credit line.

Keep in mind: HELOCs have variable interest rates, so payments can change over time. Review fees, penalties, and how often rates adjust, as terms vary by lender.

Advantages of These Loans

• Flexibility to use the funds for almost any major expense.
• Interest rates are generally much lower than credit cards.
• Interest may be tax deductible.
• Some fees and closing costs can be rolled into the loan.

Disadvantages

• Failure to repay can put your home at risk.
• Loans must be repaid in full if you move, though a new loan can be obtained to cover it.

Other Things to Consider

• Know your equity: If your home is underwater or has little equity, these loans may not be an option.
• Financial picture matters: Lenders will look at income, debts, and credit history to ensure you can repay.
• Have a clear purpose: These loans should be for specific projects or needs—not everyday expenses like vacations or clothing.
• Consult multiple advisors: Talk to me about your home’s value, a lender about loan details, a financial advisor about your overall finances, and a CPA about tax implications.

If you’re curious about whether a home equity loan or HELOC is right for you, I can help:

• Determine how much equity you have.
• Discuss if it’s a smart option for your situation.
• Connect you with trusted lenders who can guide you through the process.

Using your home’s equity can be a great tool—but only when approached carefully and with the right guidance. Let’s talk about your options and what makes the most sense for you!