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Should You Opt For A Fixed-Rate Home Equity Loan Or A HELOC? Know Here!

A home loan is an option that a person can take to make their dream come true by buying a new home. For an individual, there are other options like a Home Equity Line of Credit (HELOC), which one can take to fulfill that same purpose; however, both come with their set of clauses and benefits. 

An individual must always try to go for the minimum amount in the loan when they are considering holding their home as the underlying asset for their home. It is through the use of the right planning and analyzing the needs a person can choose for a type of loan that is suitable to them. 

In today’s blog, we will look at the purposes of home loans and HELOC and how both have their separate pros and cons. 

An Overview of Home Equity Loan

A home equity loan or a standard home loan is a line of credit that is given against the person’s home where a person gets a fixed interest and knows the amount to be paid to the bank in the form of EMIs. 

The rate doesn’t change, so the EMI amount gets fixed, which is usually beneficial for people who are salaried individuals who can break down a loan in small amounts, and due to that, the repayment process doesn’t get burdensome for those individuals. A home loan agent can help her get the best interest rate offered by the bank and can let the person get a home loan, which is flexible. 

Defining Home Equity Line of Credit 

There are certain options that a person can try depending on their needs, and that is the option of opting for HELOC. It is a better option to take a loan than to take out an unsecured debt, as the interest rate is lower. 

HELOC is a revolving credit line where you can go and ask for more credits and can continue the cycle as long as you are paying off the loans. It is based on the variable interest; since the credit line is open, it needs to go with the current market interest rate. In HELOC, one needs to be careful because in any unforeseen event, due to failed repayment, one can lose their home. 

Pros and Cons of Home Equity Loan 

Home loans as an instrument are advantageous for various purposes; however, they come with certain challenges that need to be discussed. 

Pros

  • Less Impulse Expenditure 

It is through the benefit of a fixed amount as a loan a person is less likely to use the amount for other expenditures. 

  • Fixed Payments 

It helps a person to make a budget as the monthly payments are fixed, and a person knows when to pay how much for their entire loan term. 

  • Lower Rates 

In-home equity loan, a person gets lower rates, as they have the home as the underlying asset. 

Cons

  • No More Lending Option

A home equity loan doesn’t allow the person to take further loans on the same account and, if required, needs to take another loan. 

  • Risking of Losing Home In Default

In case of failed repayment for more than 120 days, a person gets lieu to give their home in return. 

Pros and Cons of HELOC 

In HELOC, there are certain advantages that a person can take along with the clauses that one needs to maintain. Here are the pros and cons of HELOC: 

Pros

  • Flexibility in the Credit Option

A person gets more flexibility with the loan amount when they are an option for HELOC. 

  • Low-Interest Rates, Which is Variable

The interest rates are lower compared to the unsecured loan, and when the interest rate gets low, and the credit score is improved, then a person can pay low interest for their loan amount. 

  • Extra Credit Line 

In case of any emergencies, a person can get a further loan from the same account as it keeps open an extra line of credit. 

Cons 

  • Hard to Budget

It’s hard to budget for a person who goes for this option as the rates are variable. A person who has gone through SBI DSA registration can guide an individual in this scenario.

  • Chances of Impulse Spending 

A person can spend more and max out their credit limit, which will lead to a debt trap, and a person can lose their home for failed repayment.

Based on these criteria, a person can choose whether a fixed home loan is comfortable for them or a HELOC if they have multiple payments to make and are in constant need of a large amount. 

 

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