For many homeowners, making lasting improvements to their home is a top priority. For some a home equity loan or line of credit is a sensible financing option.
What’s home equity and when does using it make sense?
Home equity is the difference between how much your home is worth today and the amount you owe on the mortgage. Home equity loans and lines of credit are financial products in which you borrow money using your home as security for repayment.
Home equity financing typically has lower interest rates than many other forms of unsecured credit and the interest is potentially tax-deductible – check with your tax adviser.
What’s the difference between a home equity loan and line of credit?
Home equity loans are ideal for major one-time expenses. With a loan, you receive the entire loan amount upfront. Because a loan has a fixed interest rate, the monthly payment doesn’t change.
Home equity lines of credit can be the right account for homeowners who want to access their available credit over time during the account’s draw period. With a line, you access available funds as needed and you don’t pay interest on unused balances. Remember, a line has a variable interest rate so monthly payments can change.
What do I need to do before applying for a loan or line of credit?
Make sure you’re financially ready to start a home project by reviewing your finances, and identifying your savings, expenses and debt. Meet with a personal banker to review your situation and understand your options.