What Is the Difference Between a HELOC and a Home Equity Loan?

Posted on August 21, 2023September 5, 2023

What Is the Difference Between a HELOC and a Home Equity Loan?

Buying a home is one of the biggest investments you’ll ever make. As such, it requires a great deal of financial planning and consideration. Once you’ve made it through the initial process of closing on a home, there are still financial decisions to make, both in the near future and far down the road.

One of the most important questions homeowners face is how to finance the improvements, additions, or unexpected expenses they encounter over the years after buying a home. Many people choose to tap into the equity of their home, with the two most common methods being a Home Equity Line of Credit (HELOC) or a home equity loan.

It’s natural to have questions about the home loan process, particularly if you’re a first-time homeowner. Landmark National Bank is here to help you understand everything there is to know about home equity financing. In this blog, we’ll explain what the difference between HELOCs and home equity loans is to help you determine which is the right option for you.

Home Equity Line of Credit (HELOC)

A Home Equity Line of Credit, commonly known as a HELOC, is a flexible form of borrowing that allows homeowners to access funds based on the available equity built in their homes. With a HELOC, homeowners are granted a credit line, similar to a credit card, that they can draw from as needed. The amount available in the credit line depends on factors such as the appraised value of the home and the remaining mortgage balance.

Home Equity Loans

A home equity loan provides homeowners with a lump sum of money upfront, which they must repay over time. This type of loan is sometimes referred to as a second mortgage because it is secured by the equity in the home. Home equity loans may have fixed interest rates and loan terms, allowing borrowers to know exactly how much they need to pay each month.

Benefits of a HELOC

One of the key benefits of a HELOC is its flexibility. Homeowners have the freedom to use the funds for various purposes, whether it’s home improvements, debt consolidation, or unexpected expenses. Additionally, with a HELOC, borrowers have the option to borrow and repay multiple times throughout the “draw period,” which typically spans around 10 years. During this period, homeowners only need to make interest payments, making it an attractive option for those seeking lower monthly payments. However, if you don’t make any payments toward the principal, you’ll have to pay the entire principal balance at the end of the 10-year term.

Furthermore, HELOCs often come with lower interest rates compared to other forms of borrowing, such as personal loans or credit cards. This can save borrowers money in interest payments over time. Additionally, the interest paid on a HELOC may be tax-deductible, making it a potentially attractive option for those seeking tax benefits.

Benefits of Home Equity Loans

While HELOCs offer flexibility with a long borrowing period, a home equity loan is more consistent and predictable. Unlike a HELOC, where borrowers have access to a revolving credit line, a home equity loan is a one-time borrowing opportunity often used for larger expenses, such as major renovations, medical bills, or educational expenses. Since the funds are received upfront, borrowers have a clear understanding of the loan amount and repayment schedule from the start.

Moreover, home equity loans can be used strategically for debt consolidation. By using the loan proceeds to pay off higher-interest debts, such as credit card balances, borrowers can potentially save money on interest payments and simplify their finances.

Handle Your Finances Confidently with Landmark National Bank

When comparing the benefits of a HELOC vs. a home equity loan, it’s important to assess your financial situation and goals carefully. Each option offers unique benefits that cater to different needs. To navigate through these decisions confidently, it’s advisable to consult with a trusted financial institution like Landmark National Bank.

Our friendly and experienced team is ready to guide you through the borrowing process, ensuring you understand the differences between a HELOC and a home equity loan. Landmark National Bank offers competitive rates, flexible terms, and personalized service to help you make informed decisions that align with your goals.

Take control of your finances and explore the possibilities of leveraging your home equity. Find the closest Landmark National Bank to you or give us a call to learn more about our HELOC and home equity loan options.

What Are the Risks of a HELOC?

Posted on February 15, 2023February 17, 2023

What Are the Risks of a HELOC?

A home equity line of credit, also known as HELOC, is a way to borrow money at fairly low interest rates. A HELOC is a line of credit secured by your home that gives you a credit line to make large purchases. Many people also use these to consolidate high-interest debt, like credit card debt, to secure a lower rate.

While HELOC loans have great benefits, there are also some risks. Since the loan is tied to your home, you risk losing your home if you default on payments. If you’re wondering if a HELOC loan is a good idea, it’s essential to know the risks and what to watch out for. We’ll share some of the pros and cons of these loans to help determine if it’s the right choice for you.

Pros and Cons of a HELOC

Like most things, there are pros and cons to obtaining a HELOC. If you’re considering applying for a HELOC, it’s helpful to weigh your options to determine if it’s the right choice for you.

HELOC Pros

● You can withdraw funds for years.
● You can use the credit for many different things.
● Initial payments are low.
● Credit limits are generally high while interest rates are low.

HELOC Cons

● Your payments may not be consistent.
● You could risk losing your home.
● You may be penalized for paying the loans off early.
● Interest rates may change over time.

Can You Lose Your House With a HELOC Loan?

One of the biggest concerns with HELOC loans is the risk of home foreclosure. This is because these loans use your home as collateral. Therefore, if you don’t pay back the loan on time, you run the risk of losing your home.

If you choose a HELOC loan, it’s important to be aware of the variable interest rates and be prepared in case your payments go up. If you prepare correctly, you will have the funds to pay off your loan and not have to worry about losing your home.

Get the Most Out of Your Finances With Landmark National Bank

Our team at Landmark National Bank can provide information about the pros and cons of a HELOC loan for your specific situation. If this type of loan is something you’re interested in, we can help you create a financial plan to plan around the risks involved.

Who Should Consider Applying for a HELOC?

Posted on February 8, 2023February 17, 2023

Who Should Consider Applying for a HELOC?

A home equity line of credit, also known as a HELOC, is a second mortgage you can take out on your home or rental property to give you emergency funds, an additional line of credit for improvements to your home, or funds for a one-time purchase. The amount of credit you are awarded is based on your home’s equity and the amount you have left to pay on your mortgage. If you own your home outright, you can even use this as your primary mortgage. While this type of loan may not work for everyone, there are many who could benefit from it.

Homeowners taking out a HELOC on a primary residence or investment property as well as those who have a desire to consolidate debt payments are just a few examples of people who should consider applying for a HELOC. Not only can this line of credit give you the funds you need for improvements to your home or rental property, but it could also help you pay off some of your debts without lowering your credit score. At Landmark National Bank, we are here to help you decide if a HELOC is the right choice for your financial situation. Continue reading to determine if you should consider applying for a HELOC, then check out our guide for applying for a HELOC.

HELOC on Your Primary Residence

A HELOC on your primary property is one of the best ways to receive a second mortgage for many different uses. The most obvious use for a HELOC on your property is to use it for home improvements and expansions. Whether you’ve been wanting to redo your basement for a while or you need to quickly prepare for a new addition to your family, a HELOC is a great way to make necessary repairs and expansions to your home.

Even though the credit is coming from the equity on your home, it does not mean you have to use the money just on your home. In addition to using the credit for home improvements, you can also use the money to consolidate your debt or head back to college. As long as you are able to make the interest payments and handle the payments once you enter into the repayment period, this line of credit can be extremely helpful for several financial needs.

HELOC on Investment Property

While the most likely choice for a HELOC is taking one out on your primary residence, you can also take a HELOC out on your rental properties. Even though this can be a risk due to the potential of losing your investment property, there are still several advantages to using your investment property as collateral. When you are approved for a HELOC, it only costs you money if you choose to spend it. This means you can have this HELOC to fall back on if something goes wrong.

You can also use these funds to make your property more appealing to renters by doing necessary updates and repairs. This will help you keep your assets productive and profitable. Also, the draw period for a HELOC tends to last up to 10 years, so the cash does not need to be spent right away. Keep the cash on hand until you need it, but make sure you are aware of when the repayment period begins.

HELOC and Your Credit

If you are looking for a way to consolidate your debt and lower your monthly payments, a HELOC is a great way to do it, as long as you have created a long-term plan for paying off debt. Using your HELOC to pay off any credit card debt you may have can even help you improve your credit score and allows you to qualify for better rates and terms on any future loans you may be applying for. The total amount of the available credit on a HELOC won’t impact your score, but if you consistently advance against the total, and your utilization is high, it could negatively impact your score.

However, it’s important to be aware that if your credit score is too low, you may not qualify for a HELOC. HELOCs generally require a credit score with a minimum in the mid 600s in order to qualify, so make sure you are checking your score frequently to ensure you meet that requirement.

Apply for a HELOC at Landmark National Bank Today

If you’ve decided a HELOC loan is the right choice for you, find your nearest Landmark National Bank and apply for one today. Our financial advisers are ready to help you every step of the way as we guide you through the application process, repayment plan, and more. Contact us today for more information or to apply for a HELOC.

Your Guide to Navigating HELOCs

Posted on February 1, 2023February 17, 2023

Your Guide to Navigating HELOCs

After purchasing your first home and beginning to pay off your mortgage, you may realize some necessary home improvements need to be made or that you want to consolidate some of your other debts. Either way, you will need to begin looking into options for loans and other lines of credit that will help with these impending costs. A HELOC is one option that can help you in both of these situations by offering an additional line of credit for home improvements and debt consolidation.

You may be wondering, “what is a HELOC?” Keep reading below to find out what a HELOC is, the benefits of a HELOC, how to know if you qualify for one, how to apply for a HELOC, and some things to consider as you begin applying for one. For more information, continue reading or contact your local Landmark branch to talk to one of our knowledgeable financial advisors.

What Is a HELOC?

A home equity line of credit, otherwise known as a HELOC, is a second mortgage you can take out on your home that gives you a revolving line of credit based on the value of your home. When you apply for a HELOC, you are borrowing against your home’s equity. To figure out what that number is, you must subtract how much you owe on your primary mortgage from the value of your home. You can even take a HELOC out if you own your home outright, making the HELOC your primary mortgage.

How Does a HELOC Work?

HELOCs work similarly to credit cards in that you are allowed to borrow against your spending limit as often as needed and it comes with variable interest rates. You are generally given a maximum amount of credit that is based on the value of your home. Depending on the lender of the HELOC, there are a few different options for accessing the money from this account. You may be able to access your money online, with a bank card at an ATM, or by writing checks if the lender issues them.

There are two phases to your HELOC. The first phase is the draw period when you can take money from the account up to your approved limit. The second phase is the repayment period when you can’t take out more money and must finish paying off the money you’ve withdrawn. While you are in the repayment period, your monthly payments may rise a bit as you will now be making principal and interest payments. You may also have to pay a lump sum at the end of the loan to take care of any principal not paid during the repayment period.

What Are the Benefits of a HELOC?

In addition to providing you with the funds you require for home updates or general debt consolidation, HELOCs also come with many other benefits for those seeking a loan. First, HELOCs tend to have a lower interest rate and initial cost, which is great for ongoing projects or debt consolidation. You also only have to borrow what you need rather than taking out a lump sum of money that doesn’t actually get used fully. The less money you use each month, the less you will have to pay back later on.

You are also allowed some flexibility in terms of how you pay back your loan. A typical repayment period is 10 years, but your lender may offer different terms During this time, you will normally only have to make interest payments each month, however, you can also begin making principal payments to decrease the amount you are paying when you enter the repayment period. Adding a HELOC to your loan portfolio can potentially raise your credit score as well so long as you are making on-time payments.

How Do I Know if I Qualify for a HELOC?

In order to qualify for a HELOC, there are a few requirements that you’ll need to meet. First, your debt-to-income ratio can’t be too high, as lenders take this number into consideration.. In terms of HELOC credit score requirements, your score will need to be fairly high: mid 600s at a minimum. Finally, your home value must exceed the amount you owe on your mortgage by 20-25%. If you meet all these criteria, you can begin the process of applying for a HELOC.

How Do I Apply for a HELOC?

Once you have determined that you qualify for a HELOC, it is time to head over to your local bank branch to apply for it. Before arriving, you will need to make sure you have all the necessary paperwork and documents gathered and ready to have looked over. You will need income and employment documents, asset statements, monthly debt payments, and records of rent payments, divorce, bankruptcy, and foreclosure.

The next step is actually applying and getting approved for the loan. After you’ve been approved, you will receive some disclosure documents you will need to review thoroughly to ensure it fits your needs. Make sure to ask lots of questions in this stage so you understand what you are getting into prior to signing the documents. You will then enter the underwriting process, which can take a few weeks to complete. Finally, you are ready to sign the paperwork and begin taking advantage of your HELOC.

Things To Consider When Applying for a HELOC

There are some things you need to keep in mind when it comes to applying for and using your HELOC. First, you will need to be aware of the rate options available for your loan. There are two options to consider. The first is a variable interest rate, which is a rate that can change from month to month. The second option is a fixed interest rate, which allows you to convert a portion of your outstanding variable-rate balance to a fixed rate making your payments more predictable.

You will also want to be aware of how much credit you can actually get from the lender. The more equity you have in your home, the more you can borrow. Since you are offering your home up as collateral, it’s important to make sure you are able to handle the payments on-time to protect your house from foreclosure.

Apply for a HELOC With Landmark National Bank Today

If you believe a HELOC is the right option for you, find your local Landmark National Bank to apply for one today. We will help you every step of the way to ensure you understand what this type of loan entails and what your next steps are. Contact us today to learn more about applying for a HELOC from Landmark National Bank.