When You Need a HELOC (and Not a Home Equity Loan)

Beige New England Style Suburban Home

Borrowing against your home equity is a cost-effective way to fund a window replacement in California. The best part is that you do not need to refinance your existing loan to preserve its interest rate and avoid resetting its clock. If you are seeking a window installation service in San Diego, taking out a second mortgage is more practical and viable.

You have two option to tap the value of your house: a home equity line of credit (HELOC) and a home equity loan. Either of them comes with a lower interest rate than a personal loan because you are using a valuable asset as collateral. Between the two, though, a HELOC usually promises better terms.

Here’s why you should pick a HELOC over a home equity loan when tackling a window replacement:

You Have No Urgent Financial Need

Like a credit card, a HELOC is a revolving kind of credit. It allows you to draw money only when you need it. If you are not in a hurry to buy new windows, you can apply for it now and then withdraw the funds later.

On the contrary, a home equity loan funds in a lump sum. Once you received the cash, its repayment period kicks in immediately. As a result, you might feel pressured to start the construction ASAP.

Whether or not you intend to tackle your project sooner rather than later, a HELOC lets you take your time to plan everything thoroughly. Its draw period usually lasts up to 10 years, so you have the luxury to select an installation date your schedule permits.

You Want More Payment Flexibility

Your second mortgage can have a term of up to 20 years. The difference between the two is that the HELOC’s principal does not have to be repaid right away. Your prospective lender might let you pay just the interest during the draw period to keep your monthly payment low. Your debt is amortized only after the first half of the loan is over.

In contrast, a home equity loan does not have an interest-only payment option. You are required to take care of both the principal and the interest right from the beginning. Although you can stretch the repayment for up to 240 months to keep your bill from eating into your budget significantly, doing so inflates your overall cost of borrowing.

You Hope to Keep You Home Equity Intact as Much as Possible

couple looking at their home

Control is perhaps the most attractive feature of HELOCs. While a lender can impose an initial minimum draw requirement to guarantee some profit, you can simply season the funds in your bank account for as long as you please and make future draws as much or as little as you want.

In the end, it is your choice when and where to spend it on. If you change your mind at some point and decide to put off your window project for whatever reason, you can do so, leave the cash untouched until you are ready to move forward and pay just the interest.

Furthermore, you have the power to keep your home equity from diminishing dramatically. This is a big deal, for it can protect you from extreme property price swings.

A HELOC is not without downsides, such as an adjustable rate as well as annual and early closure fees. Nevertheless, its positives generally outweigh and outnumber its perceived negatives, so it is always worth the consideration.




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