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Home Equity Loan vs. Home Equity Line: Which Is Right for You?
If you're a homeowner, borrowing against your home's equity (its value minus your existing mortgage and any other liens) may make sound financial sense. Home equity loans and lines of credit can be used for just about any purpose from home improvements to education (even a great vacation). They typically offer lower rates than unsecured lending options and the interest you pay may be tax-deductible (consult your tax advisor).
How do you decide whether a home equity loan or a line of credit is right for you? According to the home equity team at at Mid-Atlantic Federal Credit Union in Montgomery County, MD, a loan may be the better choice if you need the money in one lump sum or prefer borrowing at a fixed rate so you'll always know what your monthly payment will be.
The more popular choice for an increasing number of homeowners is the home equity line of credit (HELOC). With a line, you may benefit from:
- Added flexibility. A HELOC is a ready source of cash. As you repay the line, the money becomes available for you to use again.
- Convenience. You can access your line simply by writing a check. This can be a plus if you'll need your line for several purchase—such as during a major home renovation—over an extended period of time.
- Budget-friendly financing. While you have access to the entire line, you only pay for the amount you actually use.
But before you apply, make sure to do your homework. Many lenders such as MAFCUalso offer added savings and incentives such as lower introductory rates and no closing costs, which can add up to even greater savings—and make home equity financing an even smarter way to borrow.