Home Equity Loan Types and Benefits
Home Equity Loan Type
1.Fixed-rate home equity loan: This type of loan has a fixed interest rate and fixed monthly payments. The interest rate and monthly payments remain the same for the life of the loan, which can be anywhere from 5 to 30 years. Fixed-rate home equity loans are a good option for those who prefer the stability of predictable payments.
2.Home equity line of credit (HELOC): This is a revolving line of credit that is secured by the borrower’s home equity. With a HELOC, the borrower can borrow up to a certain amount of money during a specified period of time, known as the “draw period.” The draw period is usually 5-10 years, during which the borrower can draw on the line of credit as needed, making interest-only payments. After the draw period ends, the borrower enters the repayment period, during which they must repay the entire balance of the loan, typically over 10-20 years. HELOCs are a good option for those who need flexibility in their borrowing and repayment options.
Home Equity Loan Type Benefits
1.Fixed-rate home equity loans:
- Predictable payments: With a fixed-rate home equity loan, you can plan your budget around a predictable monthly payment that stays the same throughout the life of the loan.
- Stable interest rate: Fixed-rate loans typically have a stable interest rate that remains the same, regardless of market conditions.
- Certainty: Fixed-rate home equity loans offer certainty and stability, which can be beneficial for those who prefer predictability in their financial planning.
2.Home equity lines of credit (HELOC):
- Flexibility: HELOCs offer flexibility in borrowing and repayment options. You can borrow as much or as little as you need, up to the credit limit, and make interest-only payments during the draw period.
- Lower interest rates: HELOCs typically have lower interest rates than credit cards or personal loans, making them a more affordable borrowing option.
- Convenient access to funds: With a HELOC, you can access funds easily through online banking, checks, or a debit card, which can be convenient for ongoing expenses or emergencies.
Calculate Home Equity
House of Value (50,00,000) – Total Loan payable (40,00,000) = Equity (10,000)
