HELOC vs HELOAN: What's The Difference?
Home Equity is simply the difference between how much your home is worth and how much you owe on your mortgage. You build equity in two ways:
What is a Home Equity Loan (HELOAN)?
A Home Equity Loan (HELOAN) is a fixed-rate loan based on the equity in your home. HELOANs are often referred to as second mortgages and the debt is secured by your home. Borrowers apply for a set amount that they need, and if approved, receive that amount in a lump sum all at once. In addition to a fixed interest rate, HELOANs have a scheduled repayment term of either 5, 10, or 15 years for the term of the loan.
What is a Home Equity Line of Credit (HELOC)?
A Home Equity Line of Credit (HELOC), though also secured by your home, works differently than a home equity loan. A HELOC is an adjustable-rate loan and acts as a revolving credit line allowing the borrower to take out money against that line up to a preset limit on an as-needed basis. Therefore, the line of credit remains open until its term ends – generally, up to 20 years, but can be customized to suit your needs. Because it has an adjustable-rate and the flexibility of the borrowed amount, the borrower’s minimum payments can also change, depending on the credit line’s usage.
What is a Home Equity with No Closing Costs?
We also offer HELOCs and HELOANs with a No Closing Cost option. They have the same set of terms as our other Home Equity products, but most of the fees (not all) are instead, covered by the bank. However, the loan account must be kept open for a minimum of 3 years to avoid paying closing costs.
Closing costs may include fees such as title insurance, abstract update, non-escrow, credit report, loan processing, appraisal, attorney fees and other expenses that are non-recurring (one time) charges at the beginning of the loan process. Because these fees are waived for the borrower, the interest rates for our No Closing Cost options are higher than our other home equity products.
Why pay a higher rate for no closing costs?
This is an option for those who may not have extra cash to pay for the fees associated with closing costs. Since the bank waives the fees and covers the costs for the borrower, the interest rates are higher.
Which type of loan is right for you?