The Differences Between Home Equity Loans and HELOCs
Learn about the difference between a Home Equity Loan and a Home Equity Line of Credit (HELOC) so you can make an informed decision about borrowing against home.
While there are many advantages to being a homeowner in Portland, the opportunity to build equity might be at the top of your list. After years of making mortgage payments, you’ll begin accruing capital on your house. You may even accumulate more if property values rise in your area or if you’ve made improvements on your home. So, how do you access that money if you haven’t paid off your house and aren’t planning to sell? You can access your Portland home’s equity if you borrow against it by using a Home Equity Loan or a HELOC (home equity line of credit).
A couple of the most popular options for borrowing against your property are home equity loans and a HELOC. Here’s what you need to know about getting a HELOC or home equity loan in Portland, Oregon.
What’s a Home equity loan?
A home equity loan is similar to a personal loan in that it permits you to borrow funds once. You also repay this type of loan back throughout a fixed term. It also has a fixed interest rate, meaning your monthly payments amounts won’t change over time. Your lender will determine a lump sum amount before giving you a loan, and you’ll get all of your money at once. Compared to HELOCs, home equity loans are a more predictable choice for some borrowers.
If you need money to cover a sizable expense, a home equity loan can be a good solution because you can pay for it in full upfront. On the other hand, Portland home equity loans can also be used to fund multiple expenditures. When you get the lump sum, you can keep it in your checking or savings account and use it as needed.
What’s a Home Equity Line of Credit (HELOC)?
A HELOC from a Portland credit union usually allows homeowners to continuously borrow funds and repay them through a line of credit, almost like a credit card account. In most instances, HELOCs have variable rates, and they tend to start lower than home equity loan interest rates. That being said, your interest will likely spike at a later date, which can increase the total amount you owe.
Your lender will set a limit to how much equity you can borrow against your home. To use the money, you may be able to transfer funds directly into your checking account or write a check. Some lenders provide physical payment cards that link to the line of credit to make things easier.
Most HELOCs from Portland credit unions have a ten-year draw period. (CCCU offers 15-year draw periods.) Mostly, you’ll have access to the sum of money and can take out as much or as little as you want at any time within an agreed upon period. During the draw period, you’re required to make interest-only monthly payments, but you can pay toward the principal if you want.
You’ll then enter a repayment period in which you can no longer access the money. At that point, you’ll have to start making monthly payments on the principal balance, plus interest. Although home equity loans are predictable, a HELOC from a Portland credit union like ours is a more flexible borrowing option.
Weighing your options
There are distinct differences between a HELOC and a home equity loan when borrowing against your property. And yet, both borrowing options have some similarities. Your equity is the value of your house that you own after factoring in what you still owe on your mortgage. Each loan involves borrowing against your equity.
Additionally, the two loan types are secured by your property. What does that mean? If, for some reason, you stop making payments, your Portland home could end up in foreclosure. Putting your Oregon house on the line is a risk, but if you know you can make on-time payments, it can be a reliable solution for many borrowers.
How can you use your HELOC or home equity loan money? You can use what you borrow from your Portland home to fund almost anything, including medical bills, credit card consolidation, or college tuition. Some people get home equity loans to pay for renovations or expansions on their houses, which will increase the property value. In that case, the loan can be viewed as a strategy for building more equity on your property.
Both home equity loans and HELOCs come with pros and cons. Make sure you do your research and evaluate your financial situation to figure out what’s best for you. If you’re considering either option, speak to one of our Consolidated Community Credit Union home loan experts for more guidance.
Home Equity Lines of Credit (HELOCs) in Portland, Oregon from CCCU
Now that you know the difference between a home equity loan and a Home Equity Line of Credit (HELOC), you can make an informed decision about borrowing against your house.
When it comes to Portland credit unions offering home equity loans and HELOCs, Consolidated Community Credit Union stands out among the rest. We offer our members both types of equity lending with no set-up fees, no annual fees, and competitive interest rates. Want to learn more about personal lending? Contact us at CCCU, and we’ll work together to find an option that meets your needs.