When you’re a homeowner, you know that big expenses will arise. Whether it’s renovating your home, consolidating debt, or covering unexpected costs, you face a key decision: how to access the funds you need. It sounds like you could use some home equity advice.
Tapping into your home equity can be a smart financial solution if you own a home.
One of the most flexible options is a home equity line of credit (HELOC), a practical solution offering significant advantages over traditional personal loans.
In this article, we’ll provide practical home equity advice by exploring five compelling reasons to choose a HELOC over a personal loan.
What is a HELOC?
HELOCs, or home equity lines of credit, are powerful financial options enabling homeowners to leverage their homes’ equity.
Unlike a personal loan, which provides a lump sum, a HELOC offers the flexibility to withdraw funds as needed during a designated draw period (typically 5 to 10 years).
You only pay interest on the amount you borrow, making it an adaptable solution for variable expenses.
Here’s the key: HELOCs are secured by your home, which allows lenders to offer lower rates than almost any personal loan, and the borrowing limits tend to be significantly higher.
This makes HELOCs a versatile option for homeowners seeking to maximize their equity.
Top reasons to choose a HELOC over a personal loan
If you’re a homeowner weighing your funding options, here are five key reasons why our home equity advice is to consider a HELOC over a personal loan:
1. Access to lower interest rates
One of the biggest advantages of a HELOC is its lower interest rate.
Because your home secures a HELOC, lenders face less risk and can pass those savings on to you through lower rates. In contrast, personal loans are unsecured, meaning lenders charge higher rates to offset their risk.
For example, while a HELOC might offer a rate as low as 6% or 7%, personal loan rates often range from 10% to 28%, depending on your credit score. Over the life of a loan, this difference can save thousands in interest.
A HELOC is the clear winner if you’re looking for a cost-effective way to borrow, especially for larger sums.
2. Flexible borrowing options
A HELOC is a revolving line of credit that allows you to borrow exactly what you need when you need it.
During the initial phase—the draw period—you can make multiple withdrawals up to your credit limit and pay interest only on the amount you use.
Personal loans, on the other hand, provide a lump sum upfront. This can be inconvenient if you don’t need the full amount all at once or if your expenses occur over time.
For example, if you’re planning several phases of a home renovation, a HELOC allows you to withdraw funds without overborrowing or paying interest on unused funds.
3. Higher borrowing limits
HELOCs typically offer higher borrowing limits than personal loans, making them a better choice for significant expenses.
- Borrowing limits for a HELOC are based on your home’s equity—the difference between your home’s market value and outstanding mortgage balance.
- Depending on lender standards and your financial profile, you may be able to access up to 85% of your home’s equity.
- In contrast, personal loans often max out at $25,000 to $50,000, which may not be enough for larger financial needs.
For homeowners with substantial equity, a HELOC provides the flexibility to fund bigger projects or consolidate higher debt levels.
4. Potential tax advantages
When considering home equity advice, it’s important to factor in potential tax benefits if the funds are used for qualified home improvements, such as:
- Renovating a kitchen
- Adding a bathroom
- Upgrading energy-efficient systems
Personal loans do not offer this benefit, regardless of how you use the funds.
For homeowners planning to invest in their property, a HELOC provides affordable access to cash and offers a tax advantage that can reduce overall borrowing costs.
Note: Tax benefits depend on individual circumstances and current tax laws. It’s advisable to consult a tax professional to determine your eligibility.
5. Keep your existing mortgage terms
Unlike a cash-out refinance, which replaces your current mortgage, a HELOC functions as a second loan that leaves your existing mortgage untouched.
This particularly benefits homeowners with favorable mortgage terms, such as a low fixed interest rate or a shorter loan term.
With a HELOC, you can access your equity without sacrificing the benefits of your primary mortgage.
In contrast, personal loans are separate from your mortgage, meaning they don’t integrate with your home’s financing advantages.
A HELOC offers flexibility without disrupting your overall financial strategy by preserving your current mortgage.
Why HomeEQ’s HELOC is a homeowner’s best choice
If you’re ready to unlock your home equity, HomeEQ makes the process simple, fast, and borrower-friendly. Here’s how:
- Soft credit checks only: HomeEQ’s application process uses soft credit checks, so you can explore your options without impacting your credit score.
- Fully digital application: The streamlined online application eliminates the need for loan officers, in-person appraisals, or lengthy paperwork—you can complete your application in minutes from the comfort of your home.
- Fast access to funds: Once approved, you can receive your funds in just a few days—perfect for time-sensitive needs.
- Flexible borrowing limits: With borrowing amounts ranging from $25,000 to $350,000 and repayment terms of 5 to 30 years, HomeEQ’s HELOC is tailored to meet various financial goals.
Home equity advice for smart borrowing with HomeEQ
When weighing your options for funding significant expenses, a home equity line of credit (HELOC) often has distinct advantages over a personal loan.
With lower interest rates, flexible borrowing, higher limits, and potential tax benefits, a HELOC is a powerful tool for homeowners who want to maximize their equity.
For a seamless and efficient borrowing experience, HomeEQ stands out with its fully digital application process and borrower-focused approach.
Take control of your finances today and explore how a HELOC can help you secure your goals.