When you need the cash out of the equity in your home, you may find that there are a few choices that are before you. Should you go with a home equity loan, or would a home equity line of credit (HELOC) be better? Here are some features of both to help you decide which one may be better for you.
If you are certain that you would like the cash out of your equity in one lump sum, then a home equity loan would be the better option for you. This means that if you know that you want the equity right away and have a purpose (or more than one) that you need the money for, then this would be the way to go. The cash from a home equity loan, or a home equity line of credit can be used in any way you want. If you want to pay for a family member's college education, or get a boat, fix up your home or make an addition, or travel, then this could be your ticket.
A home equity loan is a second mortgage, and you will often be given up to 15 years to repay the loan - or more. It is usually in the form of an adjustable rate mortgage, but you can also find lenders who will give you fixed rate, too.
A home equity line of credit, though, will give you a few options that a home equity loan will not - if you do not need the cash all at once - or are not sure if you need it all. A HELOC is also a second mortgage, but instead of getting all the cash up front, you are given a line of credit and a credit limit. A credit card, or a checking account gives you the access to the funds - as you need them.
Generally, you must make a minimum draw right away and then you start paying the interest on a monthly basis of the amount you have withdrawn. This is a major difference right here. You only pay interest on the portion of the money that you have actually withdrawn. So if you do not use it all, then your monthly payments and interest are lower. The interest is often calculated daily, and so each month will see a different size payment. You are also given a limited time to withdraw the funds - often around 11 years.
A HELOC is usually calculated on a 25 or 30-year term, and this is broken down into two periods - the draw period and the amortization period. During the draw period, you use the funds as you see fit. But at the end of the draw period, the time for amortization begins. You cannot draw out any more money, but your payments are recalculated and you begin paying off the loan.
There are several ways that you might do this, though, and you need to know which one will apply to your mortgage before you sign. It is possible that there could be a balloon payment at the end of the draw period. This would require that you refinance. Other terms may simply be monthly payments for the balance of the full-term, or other arrangements may be possible, too.
Only you can know which one, either a home equity loan, or a home equity line of credit, will be better for your needs. Whichever way you decide to go, though, be sure to get several quotes and then compare them carefully to know which one is the best deal. There may be quite a bit of difference in the interest rates and other terms - some are good and some just plain are not good.
Home Equity Loan vs HELOC (Home Equity Line of Credit) - Which is Better?
Our real estate financing hub:
Home Equity Loans vs. HELOCs: Which One Should You Choose?
0:33 - What is home equity?
1:28 - What is a HELOC (home equity line of credit)?
2:26 - What is a home equity loan?
4:37 - Cash out refinance
There’s often confusion between home equity loans versus HELOCs -- or home equity lines of credit. Both let you tap your home equity for cash but they function quite differently.
Before we go into that, let's first talk about home equity.
Put simply, equity is the share of a home or property you actually own. To calculate how much equity you have, start with your home’s value and then subtract your remaining mortgage balance.
You can use the funds to pay for home renovations, medical bills, tuition costs, or any other expenses you might have coming your way. You can also use home equity products to consolidate and pay off higher-interest debts like credit cards and personal loans.
You can think of HELOCs a bit like a credit card, they act as a line of credit and you can use the money whenever you like. A HELOC can be an alternative to a credit card which could carry a double-digit annual percentage rate.
You can withdraw funds over an extended period of time called a draw period. This can last up to 10 years. During this time, you’ll typically make interest-only payments on only the amount of money you’ve taken out (not your full credit line).
After the draw period is up, you’ll enter the repayment period, in which you’ll start to repay the money you borrowed plus interest. This period usually lasts from 10 to 20 years.
HELOCs typically come with a variable interest rate, meaning the rate will fluctuate over time. You’ll usually get a low promotional rate at the beginning of the loan, and the rate will increase as you get into the repayment period.
A home equity loan is like a traditional mortgage loan in that you’re given a lump sum all at once, rather than a line of credit you can draw from at will.
Home equity loans act as second mortgages, meaning you’ll need to make two mortgage payments each month.
You then pay the balance back month over month across your loan term, which typically ranges from five to 30 years. Because home equity loans can give you access to large amounts of cash at once, they’re often a smart choice if you have a big expense you’re dealing with.
The biggest downside of using home equity products is that you are potentially putting your home at risk. Since home equity products use your property as collateral, you could find yourself in danger of foreclosure if you fall behind on payments.
There are also costs to consider. Home equity products come with closing costs and fees. On HELOCs, you might even see fees each time you make a withdrawal. These can add up over time, especially if you expect to make several transactions over time.
Choosing between home equity loans vs. HELOCs comes down to how much money you need, how predictable your expenses are, and your current financial limitations.
The first thing you’ll want to think about is what you intend to use the money for. Generally speaking, a home equity loan is going to be best if you have a large, predictable, one-time expense to cover, like a new roof, a major car repair, or consolidating other debts.
If your costs are less predictable or you expect them to recur over time (like tuition bills or medical treatments), a HELOC may be a better option, as it allows you to pull funds as needed across an extended period of time.
Next, think about your financial situation. How predictable is your income? Do you need consistent payments that you can easily budget for, or can you afford more fluctuation?
If you need consistency, a home equity loan is your best bet. These come with fixed interest rates and predictable payments for the entire loan term.
If you’re set on tapping your home equity, HELOCs and home equity loans aren’t your only option. You might also consider a cash-out refinance. This allows you to replace your existing mortgage loan balance with a new, larger loan. You then take the difference between the two in cash, which you can use toward home improvements or any other expense, just like HELOCs and home equity loans.
Use your home equity wisely
Tapping into your home equity is not a decision to be made lightly. You probably don't want to use your home equity to finance luxury items.
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HELOC Vs Home Equity Loan: Which is Better?
What is the difference between a HELOC (Home Equity Line of Credit) VS a Home Equity Loan? Are they the same thing? Which is Better? We'll address those questions in this video! Enjoy!
Recommended Video - How To Pay Off Your Mortgage in 5 To 7 Years:
Let's first talk about the Home Equity Loan. A Hom Equity Loan is very similar to your traditional mortgage in ways that:
A.) You get all the money upfront at the loan closing.
B.) It is amortized anywhere between 5 to 30 years,
C.) It is closed-ended loan meaning that you can only pay back the loan and you typically have a fixed monthly payment and
D.) Home Equity Loans are typically borrowed as a 2nd position lien/loan.
I'm personally not a big fan of the Home Equity Loan as it restricts you from being able to access the equity all over again much like the HELOC and unlike the HELOC products, Home Equity Loans are usually a one-off loan product that's often used to spend money on education, home improvement, and personal spendings which can or can't be good.
In comparison, a HELOC (Home Equity Line of Credit) is a revolving line of credit. You can:
A.) Access the funds, pay it back, and re-use the principal portion of the HELOC. This is called being open-ended.
B.) The Draw period of the HELOC is NOT amortized which is useful when using our Debt Free Acceleration strategy to pay off your amortized loans.
C.) HELOCs use a different interest calculation versus the amortized interest calculation which can be used as an advantage when using our Debt Free Acceleration Strategy.
D.) HELOCs CAN be 1st or 2nd position lien on your property which offers some flexibility with the amount of equity you build for later investment purposes.
As you can see, I'm a bigger fan of the HELOC when USED PROPERLY and WISELY... A HELOC can be dangerous and destructive to your financial well-being WITHOUT the proper education on how to use such tool. Remember, no loan product is ever bad. The user of the loan product makes it bad through their lack of financial literacy, awareness, and education.
To learn more about our Debt Free Acceleration strategy to eliminate your debt completely, watch our 28-minute explainer video right here:
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Is a Home Equity Line of Credit right for you?
To use your HELOC wisely, you need to stick to a plan to pay it off fully, and avoid continually borrowing against your home equity.
Learn more at canada.ca/money
Text description
(Words “Is a Home Equity Line of Credit right for you?” appear on screen)
If you're like millions of other Canadians, you're busy paying down your mortgage.
(Animated hand draws a cartoon home and couple)
It will take 25 years or so... but it can be a great way to accumulate personal wealth especially if house prices rise.
(Animated hand draws woman inserting a gold coin into roof)
But mortgages have changed. And it's important to understand just how if you want to fully benefit from your home's potential to build your personal wealth.
(White screen)
The first thing to understand, is something called equity.
(Animated hand draws house outline. Words “250k Mortgage appear on screen”)
That's the difference between what you owe on the house and the value of the house.
(Animated hand colors in house outline. Words “50k”, “200k”, “Equity: You Own,” and “Debt: You Owe” appear on screen)
Your equity can increase in two ways. As you pay off your mortgage,
(Colour fades from house as 200k turns to 0)
and if the value of your house rises.
(250k appears on screen. Animated hand crosses out 250k and writes 270k. Words “Value of Home Increased” and “You own the Full Equity” appear on screen.)
Today, to finance your house
(White screen)
most banks will offer you a readvanceable mortgage if you have a down payment, or equity of 20% or more
(Animated hand draws house outline with gold coins on roof. Words “equity”, “Readvanceable mortgage,” and “You own” appear on screen)
It combines a traditional mortgage with a home equity line of credit. There's a big difference between these two forms of debt.
(Animated hand divides house in two and colours mortgage side blue and HELOC side red.)
Your mortgage debt only goes one way... down, down, down because you must make regular payments against both the interest and the principal borrowed. You pay down the mortgage principal on the one hand, your equity grows.
(Colour fades from mortgage side. White space fills with gold coins.)
But, you can borrow against that equity with the other hand... using the home equity line of credit, or HELOC. that is part of your readvanceable mortgage.
(Gold coins fade and are replaced with HELOC colour.)
Unlike your mortgage,
(White Screen)
you only have to make regular payments against the interest owing on your HELOC.
(Animated hand draws bar graph. Words “Mortgage principle”, “HELOC principle”, and “Year 1” appear on screen)
Without paying down the principal, until you sell your home.
(Animated hand draws more bar graphs for Year 10, Year 20, and Year 25. Mortgage bar decreases)
This short-term credit advantage can mean a long-term debt problem.
(Words “Mortgage paid off” appear on screen. HELOC bar remains full)
For some folks,
(White screen)
a HELOC can be a good way to pay off other, higher-interest debt or home renovations.
(Word “HELOC” appears on screen. ANIMATED HAND draws circles depicting bills and tools)
But ask yourself,
(White Screen)
Would a HELOC tempt you to use your home like an ATM?
(Animated hand draws a home with ATM on the side. Man takes cash from ATM)
Mounting HELOC debt could put you at risk if you lose your job, get sick or injured, interest rates go up, or, if your home decreases in value.
(Couple reappears next to house. Thought bubbles show first aid symbol, upward trending arrow, and house with arrow pointing down.)
If you continually borrow against your home's equity, you might end up owing more than your home is worth, lose your home, or have to sell it to pay down your debt.
(Thought bubbles disappear. Animated hand draws for sale sign next to house.)
To use your HELOC wisely,
(White Screen)
you'll need to stick to a plan to pay it off fully, and avoid continually borrowing against your home equity.
(Animated hand draws a budget. Words “Household Budget”, “1. Mortgage Payment”, “2. HELOC Payment”, and “3. Savings” appear on screen)
Don't use your house as an ATM.
(White screen)
Take charge of your finances.
(Animated hand draws smiling couple sitting at table with a budget and calculator.)
(White Screen)
Learn more at canada.ca/money
(Animated hand draws words Canada.ca/money)
(Screen fades to Government of Canada logo)
(Dip to black)
Which Is Better: A Home Equity Loan or Line of Credit?
So you need some money. Which is better a home equity loan or a home equity line of credit?
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Home Equity Loan vs Home Equity Line of Credit (HELOC): Easy Peasy Finance for Kids and Beginners
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How a Home Equity Line of Credit Works!
It's very common as your home value increases you might want to tap into your equity. But should you? Let's take a closer look at how a home equity line of credit works to see if it's right for you!
If this video helped you, please donate what you feel is right:
In practice, I share with my client's to simply #JTAB = Just Take a Breath it'll be alright as we move forward together. Remember, FEAR = False Evidence Appearing Real. What's the best way to replace FEAR? With knowledge and you're doing that right now. Kudos!
What you'll learn:
1. How a HELOC works & how to use a HELOC! (HELOC = Home Equity Line of Credit)
2. Are equity loans a good idea?
3. What are the disadvantages of a home equity line of credit?
**To find top agents near you, please email me directly at: Andrew@AndrewFinneyTeam.com Thank you!**
Join us live every Wednesday at 11am PST. See you soon!
NOTE: To adjust video speed for your listening/ viewing pleasure, please use the settings icon on the bottom right of your screen. It looks like a gear. =)
Timeline:
1. 0:58 - What you'll learn about a home equity line of credit in this video!
2. 1:21 - What is a Home Equity Line of Credit (HELOC)?
3. 2:44 - How a HELOC works! HELOC explained in an easy to understand way!
4. 4:06 - How does a HELOC affect your credit score?
5. 4:50 - Common reasons why people get a HELOC!
6. 6:50 - Common reasons NOT to get a HELOC and what are the disadvantages of a home equity line of credit!
7. 8:50 - How to get the best interest rate on your HELOC!
8. 9:16 - HELOC vs Home Equity Loan!
Want to know more about buying a house in Las Vegas or Las Vegas real estate? Send me a message. I'm happy to help.
Thank you for watching! =)
Enjoy an amazing day!
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Andrew's videos are his own and do not necessarily represent the views and/ or opinions of KRG.
The purpose of Andrew's videos are to educate you and help you make sense of the real estate process. If you have questions about home loans, real estate, taxes, financial advice, real estate law, insurance, or any other services where you live, you are advised to reach out to the appropriate professional for further counsel about your own unique situation.
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Home Equity Line Of Credit Vs Home Equity Loan
Home Equity Line of Credit vs Home Equity Loan: Which is right for you?
What is the difference between home equity loans vs, home equity lines of credit (HELOC)? Both are options to leverage the equity of your home for cash, but each option works quite differently.
In this video, I'm going to explain what a home equity line of credit and a home equity loan is, and some of the pros and cons of each.
0:00 Introduction
1:38 What is a home equity loan?
2:27 What is a home equity line of credit?
4:07 How does a home equity loan compare to a home equity line of credit?
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Home Equity Line of Credit - Dave Ramsey Rant
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Home Equity Loan vs. Home Equity Line of Credit
What is equity as it relates to your home? What is a home equity loan vs. a home equity line of credit? Learn the definitions and the differences in this informative video from Florida Credit Union.
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HELOC vs Home Equity Loan | How to Use Your Home Equity to Buy More Properties!
Hey guys welcome back!
This video is an introduction into home equity lines of credit (HELOCs) and home equity loans. While they sound similar, these two loan options have some pretty big differences which I'll explain here!
I'll also talk through the basics of each one, and which one I recommend for helping to grow your real estate portfolio (such as financing a rental property) at a low rate.
The best thing about using HELOCs and Home Equity Loans is that you are using an asset you already have, the equity in your house!
- - - - - - - - - - - - - - - - - - - - - - - - - -
EVERYTHING YOU NEED TO KNOW ABOUT BUYING RENTALS AS A BEGINNER:
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If you don't already own a home or property that you can leverage equity in but still want to begin building a real estate portfolio, I recommend my FHA intro video, which explains how you can leverage federal housing programs to buy your first multi-unit rental property:
Home Equity Line Of Credit
Have you ever heard of home equity line of credit? If you're thinking of getting one, this video is for you. I'm going to share with you what it's all about and if it is a good idea to get one.
Watch and Enjoy!
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EARNINGS DISCLOSURE
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Kris Krohn is not in the business of providing personal, financial or investment advice and specifically disclaims any liability, loss or risk, which is incurred as a consequence, either directly or indirectly, by the use of any of the information contained in this document. Also, Kris Krohn, this document, and any online tools, if any, do NOT provide ANY legal, accounting, securities, investment, tax or other professional services advice and are not intended to be a substitute for meeting with professional advisors. If legal advice or other expert assistance is required, the services of competent, licensed and certified professionals should be sought. In addition, Kris Krohn does not endorse ANY specific investments, investment strategies, advisors, or financial service firms.
Is a Home Equity Loan or Line of Credit Right for You?
In this video, learn about how home equity loans and home equity lines of credit can help you access the equity in your home and help you achieve your goals.
Home Equity Line of Credit vs. Home Equity Term Loan
How do you decide between a home equity line of credit or a home equity term loan? This short video from Dollar Bank explains the purpose and strengths of each.
What is a Home Equity Loan
A home equity loan allows you to borrow against your home’s equity and can help you achieve goals like remodeling your kitchen or consolidating your bills. To learn more, visit
Comparing Home Equity Loan and Home Equity Line of Credit (HELOC)
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What's the Difference Between a Home Equity Loan and Line of Credit?
Find out what the difference is between a home equity loan and a home equity line of credit, and what's best for you! ENB offers a product called The HomeLine that combines the best parts of the two options, which makes The HomeLine the perfect solution at any stage of life!
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HELOC (Home Equity Line of Credit) and Covid-19 Impact
If you own a home and have some equity in it. one of the smart ways you can weather the covid-19 storm and save on interest cost is by utilizing the Home Equity Line of Credit or HELOC. As with any debt, there are always dangers associated with it, but when we add Covid-19, potentially falling real estate prices and banks trying to make up for the loss of commercial loans taking a HELOC during Covid-19 is both extremely difficult and has extra dangers to borrowers.
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????Timestamps????
00:00 HELOC can save money
00:46 What is HELOC
01:57 HELOC Considerations
02:20 HELOC Dangers
03:09 HELOC and Covid-19
03:50 Processing Times
04:54 Credit Profile
05:24 Real Estate Prices
05:54 HELOC Freeze
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Home Equity Loans vs. Home Equity Line of Credit (HELOCs)
Home Equity Loans and HELOCs both allow you to leverage the available equity in your home to finance big purchases. Learn more here about the similarities and differences between Home Equity Loans and HELOCs.
How to Choose Between a Home Equity Loan or Home Equity Line of Credit
There are different strategies to decide what debt to pay first, like starting with paying off high interest debt or deciding to tackle smaller debts first.
Think Twice Before You Get a Home Equity Line of Credit
Think Twice Before You Get a Home Equity Line of Credit - Debt Free In 30 - A Personal Finance Podcast - Ep 231. A home equity line of credit (HELOC) is a loan secured by the equity in your house. A HELOC is often presented as a great borrowing tool because unlike with credit cards or unsecured loans, you have access to a large amount of revolving cash at a lower interest rate. But what you probably don't know is that your bank can change the borrowing terms on your HELOC whenever they want. I talk with Scott Terrio and he shares why you need to think twice before signing up for a home equity line of credit.
Show notes:
Mortgage VS HELOC: Can a Home Equity Line of Credit save interest?
Comparing a Home Equity Line of Credit to a Mortgage as a strategy to pay down debt while utilizing the simple interest of a HELOC compared to the compounding interest of a mortgage.
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Does it make sense to transfer a sum of money from the HELOC to the mortgage as lump sum payment and how much does it save over time? There is a lot of speculation on this topic but today I show you how I broke down the numbers to actually determine if the strategy will save money over the long term. Comparing simple interest to compound interest is a complex strategy and is not easily determined. This spreadsheet helps estimate the potential cost reward benefit of making extra payments to reduce the interest portion of a mortgage. Many scenarios will benefit from using a HELOC without making extra payments but still saving money over time.
To use the chart simply enter the mortgage and HELOC information and the amount of the transfer. The payments are calculated automatically and we can now can see how much interest will be paid on the mortgage from now until the balance reaches zero.
The spreadsheet has 2 sheets:
Quick Calculator - Compares equal payments to either a mortgage only or to combined debt mortgage/HELOC scenario to determine which one would out perform in terms of interest savings.
Custom - Daily tracking spreadsheet that calculates interest savings utilizing a HELOC as a bank account to help keep the debt as low as possible while still continuing to make mortgage payments.
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How a Home Equity Loan Works!
You're building up equity in your home as you pay down your mortgage each month and the real estate market appreciates. At some point, you may want to tap into your home equity. Let's review how a home equity loan works and what is a home equity loan exactly to see if it's right for you!
#HowAHomeEquityLoanWorks
In practice, I share with my clients to simply #JTAB = Just Take a Breath it'll be alright as we move forward together. Remember, FEAR = False Evidence Appearing Real. What's the best way to replace FEAR? With knowledge and you're doing that right now. Kudos!
What you'll learn:
1. Home equity loan explained!
2. Second mortgage vs home equity loan!
3. Should I get a home equity loan?
NOTE: To adjust video speed for your listening/ viewing pleasure, please use the settings icon on the bottom right of your screen. It looks like a gear. =)
Timeline:
1. 1:30 - How a home equity loan works!
2. 2:01 - Home equity loan vs HELOC!
3. 3:47 - How do you pay back a home equity loan?
4. 5:11 - Pros and cons of a home equity loan!
5. 7:51 - How to get a home equity loan!
6. 8:38 - How to get a home equity loan with bad credit!
7. 10:11 - It comes down to your Loan-to-Value (LTV) ratio!
8. 11:21 - Beware of red flags!
9. 12:56 - Home equity loan alternatives!
Thank you for watching! =)
Enjoy an amazing day!
Andrew Finney
#AndrewFinney
AndrewFinneyTeam
Disclaimers/ Credits:
At the time of production, Andrew Finney, S.0173260, is a real estate salesperson with King Realty Group in Las Vegas, NV.
Andrew's videos are his own and do not necessarily represent the views and/ or opinions of KRG.
The purpose of Andrew's videos are to educate you and help you make sense of the real estate process. If you have questions about home loans, real estate, taxes, financial advice, real estate law, insurance, professional trades, or any other services where you live, you are advised to reach out to the appropriate professional for further counsel about your own unique situation.
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HELOCs ARE GREAT! Until They’re NOT... Using A Home Equity Line of Credit in 2020
HELOCs are great - until they're not - and using a home equity line of credit in 2020 can be especially tricky given the recession and upcoming housing market crash (yes folks, I still think this is on the horizon for us).
In this episode, Matthew Pillmore, president of VIP Financial Education, discusses why he HATES home equity lines of credit and why he LOVES home equity lines of credit.
0:38 - What is a Home Equity Line of Credit? HELOC Explained! (Financial Literacy)
1:20 - Why I HATE Home Equity Lines of Credit Introduction
2:00 - Hate #1: HELOCs are attached to Prime.
2:26 - Hate #2: They are often frozen during downturns.
3:34 - Hate #3: Non-owner occupied difficulties (tough to get on an investment property).
4:32 - Why I LOVE Home Equity Lines of Credit Introduction
4:37 - Love #1: HELOCs are 100% Liquid - good as cash!
4:51 - Love #2: A HELOC is often eligible to use as a downpayment on a mortgage.
5:57 - Love #3: A HELOC can come with a relatively low interest rate.
6:15 - Love #4: HELOCs are relatively inexpensive when compared to other Debt Weapons, like a Home Equity Loan for example.
6:44 - Love #5: The potential tax benefits that come with a Home Equity Line of Credit.
6:50 - Love #6: High loan-to-value with a primary residence Home Equity Line of Credit.
7:11 - The best way to use HELOCs and other Debt Weapons… is like a perfect balance between “Rich Dad Poor Dad” Robert Kiyosaki and “Debt Is Stupid” Dave Ramsey.
HELOCs are one of the most versatile Debt Weapons out there and can be an excellent tool for speeding up your debt free journey, paying off your mortgage in a fraction of the time, and getting you into investment opportunities like buy and hold real estate. HELOCs can be a great way to build your cash flow! But... they also have some downsides...
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Refinance or Home Equity Line of Credit (Which Is Better If I Need Cash)
There are two ways to get cash out of the equity of your home.
You can do whats called a cash out refinance which gives you one loan and whatever cash you need.
Or you can keep your existing mortgage and add a second loan which is called a home equity line of credit.
Either one can be beneficial and it really just depends on your situation, your current interest rate, interest rates at the time you refinance, etc.
Roger Mansourian
Vantage Home Loans
145 S. Fairfax Ave. #200
Los Angeles, CA 90046
NMLS # 1394651
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This program is perfect for anyone is self-employed or owns their own business. This program requires no tax returns so if you got turned down by one of the big banks because you have too many write-offs this program is the one to go with.
Your deposits in your business or personal account is your income! Simple as that
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3) INVESTOR LOAN PROGRAM- (FOR INVESTMENT PROPERTIES ONLY)
This loan does not require any income or documentation. The only requirement is that the rent generated by the property covers the mortgage payment. This can be used for refinances or if you want to buy an investment property you can utilize this program with NO INCOME!
Video coming soon...
Home Equity Line of Credit (HELOC)
This video explains what a home equity line of credit (HELOC) is and provides an example of how a lender might compute the maximum line of credit that it would be willing to provide to a homeowner.
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What Is a Home Equity Loan? | Financial Terms
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A home equity loan is simply where you're taking a second mortgage against your house. So, I know that might sound a little confusing, but let me give you an example.
Let's say my house is worth $300,000, and I have a mortgage on it, and I owe $200,000 on that mortgage. So, that means there's $100,000 of equity there in that property. And one of the challenges, sometime, is you pay your mortgage down, you might want to use that equity or some of that value, for other financial goals you're looking to achieve. So, how do you do that?
The way you do that, is by taking out a home equity loan against the property. And most home equity loans might be a 10 or 20 year loan, and you're borrowing the money. And typically you're gonna pay a little higher interest rate than you would on your regular mortgage, because, technically, if you don't make your payments, the bank that holds the first mortgage has the first right to your collateral. And the lender for the second mortgage, or the home equity loan, would be next in line. So because of that, there's a little bit more risk, and you'll often be assessed a little bit more interest, because of that risk.
Now, there are two main types of home equity loans. There's a set loan, a home equity loan where I borrow a certain amount. Let's say, I borrow $20,000. I pay interest on it, and every month I make my monthly payment. So, I know exactly when I'll be done, and I know exactly what my monthly payment will be. That's known in the industry as a home equity loan.
Another type of home equity, is what's called a home equity line of credit. This is where you have access to money, but you're only gonna pay interest, if you actually use it. So, it works very similar to a credit card where, if I'm not using the money, I'm typically not paying interest. But once I use it, then there's a balance, and a monthly payment associated with it.
So, really important, a lot of times people take credit card debt, or other types of debt, and they want to consolidate it onto a home equity loan. And the reason they want to do that is, number one, to simplify their financial life. Number two, home equity loans usually have a lower interest rate, than credit cards, for example. And number three, sometimes the interest on a home equity loan is tax deductible. So, those are all good benefits.
But if you do this, be aware that once you do that, you're home is now at risk. In other words, if I can't make my credit card payments, the lender can't come take my house. But if I can't make my home equity loan payments, my house now is at risk. So, that's a big difference.
Number two, most home equity loans take a lot of time. They're 10, 20 year loans. And, like we were talking about, if you stretch out debt, often times you may pay more over the long term, even though your monthly payment may go down.
And lastly, when consolidating debt onto a home equity loan, be aware that you're not moving debt around versus paying it off. Because I see a lot of people, they move credit card debt to their home equity loan, and then in a few years, what happens? The credit card debt starts coming back, and they owe money on the home equity. So, they have more debt. They're addressing some of the symptoms, and not the cause.
So, home equity loans can be a great way to give you access to money and equity that's tied up in your property. But just make sure you don't fall into any of those problem areas, because I see that happen a lot. And people underestimate the risk that they incur.
July 2020 QOM - Home Equity Loan v. Home Equity Line of Credit (HELOC)
Ryan F. Callahan, CIMA®, CPFA
Wealth Planner
Northeast Planning Associates, Inc.
833-CAL-PLAN (225-7526)
ryan.callahan@lpl.com
callahanplans.com
Cash Out Refinance Vs. Home Equity Line of Credit (HELOC)
Cash-Out Refinance:
You need to first weigh your current interest rate on your existing mortgage with what the current interest rate is that's being offered. If you're early in the term of your loan and it's possible to refinance into a better interest rate, this could very well be a better option for you right off the bat.
- This is a new mortgage that will replace your existing one.
- Will reset the loan term (i.e. 30 years)
- Lump-sum upon closing
- New mortgage payment will depend largely on how much equity you have and what your new interest rate is vs. what it was.
- Current interest rate near 4.1%
- Fixed Interest Rate
- Cost is approximately $4,000 in closing costs.
HELOC:
- Existing mortgage is unaffected.
- Variable interest rate.
- Current interest rate is near 5%.
- Can draw from it as needed. When paid down, can draw off it again.
- Monthly payment will depend on current balance
- Little to no cost.
What is a Home Equity Loan?
Do you have equity in your home? Did you realize you can access that equity to invest? I'm going to go over the different ways to pull that money out of your home so that you can put it towards building financial freedom.
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Kris Krohn is not in the business of providing personal, financial or investment advice and specifically disclaims any liability, loss or risk, which is incurred as a consequence, either directly or indirectly, by the use of any of the information contained in this document. Also, Kris Krohn, this document, and any online tools, if any, do NOT provide ANY legal, accounting, securities, investment, tax or other professional services advice and are not intended to be a substitute for meeting with professional advisors. If legal advice or other expert assistance is required, the services of competent, licensed and certified professionals should be sought. In addition, Kris Krohn does not endorse ANY specific investments, investment strategies, advisors, or financial service firms.
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The contents of this video are for informational and educational purposes only. They should not be considered investment, financial, legal or tax advice. Kris Krohn is not licensed in the insurance or securities industries and is not in the business of selling, soliciting or negotiating the sale of any insurance contract, security or other investment vehicle.
DISCLOSURE OF FINANCIAL RELATIONSHIP
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HELOCS Can Make You Rich! (Why I Love Home Equity Lines of Credit)
President of VIP Financial Education, Matthew Pillmore, follows up with the reasons why he loves HELOCs (Home Equity Lines of Credit) and how you can leverage them as a Debt Weapon!
Don't forget to sign up TODAY for your exclusive one on one consultation at:
Check out Matthew's video on Why He Hates HELOCs:
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