Your home needs a bit of improving and perhaps some repair work, but you’re not sure how to get together the cash you need. Should you open a line of credit or take out a loan? The choice is rarely black or white. Here are a few general tips to help you decide the best route take.
A home equity loan may be best if you intend to use it in one lump sum for something like siding for your home, replacing the roof, high-end landscaping, termite damage repairs, or even credit card consolidation. With a home equity loan, you’ll have monthly payments with a fixed interest rate.
Another alternative is to get a HELOC. This type of financing may work better for you if you need money occasionally rather than all at once.
Such is the case with long-term home renovation projects when the homeowner pays the contractor in two or more draws. Maybe your children are getting ready for college soon and you need a hefty amount of money at the start of each semester over the next four years.
HELOC financing offers you flexibility in terms of borrowing money when you need it and how you choose to spend it.
Question: Do I need the money for a short-term or long-term purpose?
Answer: If you need the money for something that lasts a considerable amount of time, such as a new roof or room addition, a home equity loan is likely the better choice. However, if you intend to spend the money on something more short-term in nature, such as a wedding reception or to pay for a semester in college, an equity line of credit is more appropriate.
Question: Do I need the money all at once or in installments over a period of time?
Answer: It’s better to take out a home equity loan if you need the money in one lump sum. If it’s better to receive the money in installments, applying for a home equity line of credit may be preferable.
Question: How much does a variable rate worry me?
Answer: A HELOC carries an adjustable rate that tends to change every time the Federal Reserve raises or lowers the rate of federal funds. If it worries you that the rates could rise every so often when the Fed assembles, it’s probably best to get a loan with a fixed rate: a home equity loan.
Question: Based on my budget, how much can I afford to pay each month?
Answer: A typical home equity loan will require that you pay both the principal and interest each month over the course of the loan. A HELOC, on the other hand, will let you pay just the interest for many years, if you choose to do so.
However, it may not be a very good idea to pay just the interest and not the actual principal. How will you ever pay off the loan?
Question: How tempted am I to spend the money from a line of credit carelessly?
Answer: Obviously, if you know you’ll be tempted, it’s better to get a home equity loan. This will demand that you pay both principal and interest until the loan is paid in full rather than dealing with a revolving line of credit.
Answering these questions honestly will show you which financing option will be best for you. Get more information visit here for your home.
Alice is an experienced real estate blogger. Here she discuss about new strategy and share information of real estate as well as home improvement.
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