Home equity loans and home equity lines of credit (HELOCs) are both ways to borrow money using your home as collateral. However, there are some key differences between the two options.
Home Equity Loans:
- Fixed interest rate
- Fixed monthly payments
- Pay off the loan over a set period of time
- Typically used for large expenses, such as home renovations or debt consolidation
HELOCs:
- Variable interest rate
- Interest-only payments during the draw period
- Can access the funds as needed, up to the credit limit
- Typically used for ongoing expenses, such as home repairs or education costs
Life Examples:
- You want to borrow $50,000 to renovate your kitchen. You could take out a home equity loan with a fixed interest rate of 5% and a 10-year repayment period. Your monthly payments would be $536.82.
- You want to borrow money to pay for your child’s college education. You could take out a HELOC with a variable interest rate of 3%. You would only have to make interest-only payments during the draw period, which could be as long as 10 years. Once the draw period ends, you would have to start making principal and interest payments.
Which Option Is Right for You?
The best option for you will depend on your individual circumstances. If you need a fixed amount of money for a specific purpose, a home equity loan may be a good option. If you need access to funds on an ongoing basis, a HELOC may be a better choice.
It’s important to talk to a mortgage broker to discuss your options and decide which type of loan is right for you. If you would like to get connected with a Canadian mortgage broker to find a solution that works for you, go ahead and complete the form below.
