Now that home values are appreciating again, home equity loans are once more becoming popular tools for financing. That’s largely due to pent-up demand and attractive interest rates.
For some consumers, though, a home equity line of credit (HELOC) is easier to secure, and less expensive in terms of interest.
If you’re considering either one, you’ll want to understand the advantages and disadvantages. Rules vary by state, but here’s a brief primer on how each one works in Texas.
About Home Equity Loans
At Amplify Credit Union, these vehicles allow you to borrow a lump sum at a fixed interest rate for a range of purposes, most commonly home renovations, college tuition, debt consolidation, emergency funds or vehicle purchases. Each loan is set up with five- to 20-year terms similar to your original mortgage, with equal monthly payments spread over that time. Your home represents the collateral that reduces risk for your credit union or bank; in Texas, that equity is compiled by determining 80 percent of your home’s appraised value then subtracting the balance on your mortgage. In the rare case of default, it’s possible for you to lose your home.
Amplify offers a similar unsecured product called a Homeowner Express Loan, which offers a maximum balance of $40,000 without requirement of home equity, liens or closing costs. The loan of five, seven or 10 years is ideal for homeowners who lack equity and/or need immediate funds.
About Home Equity Lines of Credit (HELOCs)
Amplify can also offer qualified borrowers variable-interest Home Equity Lines of Credit which allow for minimum withdrawals of $4,000. The money can be used for a number of different purposes and is ideal for those with ongoing home renovations.
A HELOC uses your home equity as collateral following the same formula as a home equity loan. It allows for a 10-year draw period during which the borrower can choose to make interest-only payments, or regularly pay off the balance without penalty. Any balance not paid by the end of the agreement can be refinanced into another HELOC or subjected to regular installment payments.
Compare Home Equity Loans and HELOCs
Check out our infographic to help determine the right one for you.
Interested in a Home Equity Loan or HELOC?
If you're considering going the Home Equity Loan route, Amplify offers terms of 5, 10, 15 and 20 years, with funds available four days after closing and no prepayment penalties on early or extra principal payments. Click here to learn more about Home Equity Loans.
If you're interested in exploring the Home Equity Line of Credit option, allowing you a 10-year draw period followed by a 10-year payback period, click here to learn more about HELOCs.