As times may get tougher, but bills and family pla can't be put on hold. That's why it may be all t
As times may get tougher, but bills and family pla can't be put on hold. That's why it may be all the more tempting to tap into what likely is your biggest a et: the house.
After all, you can get your hands on a big chunk of money to finance just about anything you need - home repair or renovation, tuition payments, a get-out-of-credit-card-debt-free card.
In the midst of 10 interest rate cuts by the Federal Reserve this year, the cost of borrowing money agai t the equity in your home has gotten comparatively cheaper. And, unlike other forms of co umer debt, the interest you pay may be tax-deductible.
But even with low rates and potential tax deductio , you should know the full implicatio of the debt scheme. Determining whether a home equity loan (HEL) or home equity line of credit (HELOC) makes se e for you depends on several factors. And before deciding, be clear on how the two i truments differ from each other.
Home-equity loa are e entially a second mortgage loa . You get a large chunk of money and pay it back in fixed monthly i talments (EMIs) over a fixed period of time, typically 10 -15 years. The most common HEL has a fixed interest rate that, like a mortgage, you lock in when you secure the loan.
A home equity line of credit, by contrast, functio more like a credit card. You're given a preset credit limit and you pay back only what you use plus the interest. When you secure a HELOC, you typically receive a cheque book or credit card which you may use up to your credit limit.
Whenever you use some of the credit, you owe a monthly minimum payment on your outstanding balance, but beyond that it is left to the individual to decide how much one can pay back and when.
The interest rate on a HELOC is fixed to the prime rate - the rate at which banks lend to their most creditworthy clients.
Home-equity loan is best used for a one-time goal for which payment will be due in full and which has long-lasting benefits. For example, a loan makes se e if you want to finance a ecific home improvement project that boosts the equity of your house, as a housing loan or if you want to pay off high-interest credit card debt in one stroke.
So, if you're taking on a multi-year home improvement project for which you'll have to submit post-dated cheques at varying times during that period, a HELOC might be best option. (But carefully read the terms of your agreement. Some lenders may require you to use a certain amount of the home loan by a given time-period or the loan calculator may vary under various schemes).
After all, you can get your hands on a big chunk of money to finance just about anything you need - home repair or renovation, tuition payments, a get-out-of-credit-card-debt-free card.
In the midst of 10 interest rate cuts by the Federal Reserve this year, the cost of borrowing money agai t the equity in your home has gotten comparatively cheaper. And, unlike other forms of co umer debt, the interest you pay may be tax-deductible.
But even with low rates and potential tax deductio , you should know the full implicatio of the debt scheme. Determining whether a home equity loan (HEL) or home equity line of credit (HELOC) makes se e for you depends on several factors. And before deciding, be clear on how the two i truments differ from each other.
Home-equity loa are e entially a second mortgage loa . You get a large chunk of money and pay it back in fixed monthly i talments (EMIs) over a fixed period of time, typically 10 -15 years. The most common HEL has a fixed interest rate that, like a mortgage, you lock in when you secure the loan.
A home equity line of credit, by contrast, functio more like a credit card. You're given a preset credit limit and you pay back only what you use plus the interest. When you secure a HELOC, you typically receive a cheque book or credit card which you may use up to your credit limit.
Whenever you use some of the credit, you owe a monthly minimum payment on your outstanding balance, but beyond that it is left to the individual to decide how much one can pay back and when.
The interest rate on a HELOC is fixed to the prime rate - the rate at which banks lend to their most creditworthy clients.
Home-equity loan is best used for a one-time goal for which payment will be due in full and which has long-lasting benefits. For example, a loan makes se e if you want to finance a ecific home improvement project that boosts the equity of your house, as a housing loan or if you want to pay off high-interest credit card debt in one stroke.
So, if you're taking on a multi-year home improvement project for which you'll have to submit post-dated cheques at varying times during that period, a HELOC might be best option. (But carefully read the terms of your agreement. Some lenders may require you to use a certain amount of the home loan by a given time-period or the loan calculator may vary under various schemes).
