HELOAN

A HELOAN, short for Home Equity Loan, is a type of loan that allows you to borrow a lump sum of money using a portion of your home's equity as collateral.  

These loans that can be used for a variety of purposes, such as home improvements, debt consolidation and other large purchases that require a lump sum of money.

  1. Collateral: Your home serves as collateral for the HELOAN. You will borrow against the available equity in your home.
  2. Lump Sum:  Borrowers receive a one-time lump sum distribution from the equity in their home.  The amount you can receive depends on how much equity is available, and your credit score.  
  3. Interest Rate: HELOANs come with a fixed rate and are typically lower than personal loans or credit cards.
  4. Fixed Payment:  With a HELOAN, the distribution is a one-time lump sum amount, and the interest rate remains fixed. As a result, your monthly payment will also be fixed for the term you choose.

Determining your homes equity is easier than you think. 

  1. Estimate Your Home’s Value:
    • Begin by finding out your home’s current market value. You can use online home price estimators or consult a professional appraiser.
    • Keep in mind that online estimators provide estimates based on algorithms, while appraisers assess the true value.
  2. Find Out What You Owe:
    • Check your most recent mortgage statement to determine the outstanding balance on your mortgage.
    • This balance includes any other loans secured by your property, such as second mortgages or home equity loans.
  3. Calculate Your Equity:
    • Subtract the mortgage balance from the estimated market value of your home.
    • The formula is: Home Equity = Current Home Value - Mortgage Balance.


Example: If your home is valued at $300,000 and you owe $200,000 on the mortgage.  You would have $100,000 of equity in the home.


To qualify for a HELOAN, you generally need a good credit score (usually above 660), and a manageable debt-to-income ratio.  Other factors, such as your income, assets, and the property's appraisal value, will also be considered.

Both options use your home as collateral, offering lower interest rates compared to credit cards or personal loans.  However, there are a few differences to consider.

HELOC (Home Equity Line of Credit):
  • A HELOC is like having a credit card secured by your home’s equity.
  • HELOC Key Points:
    • Draw Period: During the draw period (usually 10 years), you can borrow funds as needed, up to a predetermined credit limit.
    • Flexible Repayment: Your monthly payments during the draw period can be flexible, including interest-only options.  After the draw period expires, your loan converts to a principal and interest loan (usually 20 Years). 
    • Revolving: As you pay back what you borrow, your available credit replenishes, similar to a credit card.
    • Variable Interest Rate: Most HELOCs have a variable interest rate tied to market conditions.
  • Best For: If you want flexibility to borrow over time or for ongoing expenses.
HELOAN (Home Equity Loan):
  • A HELOAN provides a lump sum of money upfront.
  • HELOAN Key Points:
    • Fixed Payment: You receive a fixed amount and start repaying it immediately through regular principal and interest payments.
    • No Revolving: Unlike a HELOC, there’s no replenishing credit line.
    • Fixed Interest Rate: HELOANs typically have a fixed interest rate and term.
  • Best For: If you need a one-time lump sum for a specific purpose (e.g., home improvements, debt consolidation).