Home financing can help you purchase your dream home, but did you know that you can also use home financing to free up funds? Depending on what you’re looking for, a mortgage or a home equity line of credit can be a great fit for your financial needs.
What is a Mortgage?
A mortgage is a home loan during which a lender provides funds to a borrower for the purchase a home or property. The borrower will receive a set amount of funds to cover the purchase of the home and will agree on set repayment terms. The loan amount cannot exceed the value of the home and the home is used as collateral.
This type of home loan is great for someone who is looking to purchase a home initially. There are a variety of mortgage loan options that are intended to fit different situations and help the borrower get into their dream home. For a more in-depth look at mortgages, check out this great article.
What is a HELOC?
A Home Equity Line of Credit, also known as HELOC, is an open line of credit that is secured by the equity, or paid value, of your home. The line of credit has a set draw period, which means the borrower can access the funds at any time during that time period, typically set to be between 5 to 10 years. These funds can be used to cover expenses like home improvements, weddings, schooling, and more.
A HELOC can only be utilized if you own or have equity in your own home. This means that this solution for accessing extra funds isn’t accessible to everyone, including those who don’t have enough equity in their homes to qualify. However, if you do qualify for this line of credit or for a home equity loan, this can be a great resource to access those funds as you need them.
Similarities and Differences
Mortgages and HELOCs are both home loans that can be beneficial for you, however there are some similarities and differences that may make it easier in understanding and deciding on what will help you the most.
A mortgage and a HELOC have very different uses. A HELOC is a line of credit, which means that you can access and borrow funds as needed for any project or purpose you might need them for. With a mortgage, the funds are all provided at once and are tied into the purchase of your new home.
While a mortgage enables you to purchase a home, in order to utilize a HELOC you must have equity in a home already in order to qualify. However, both are secured with your home as the collateral and have limits based on the value and/or equity that you’ll have in the home.
Choosing a home loan can take some research and time, but fortunately there are plenty of options to help you find the right fit for your situation. Whether you’re looking to buy a home with a mortgage or to finance a special project or event, there’s financing options available to help.