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You know that you can borrow against the equity that you've built in your home, using the funds from home equity loans to pay for whatever you want, whether you're ready to remodel your aging kitchen or pay off high-interest-rate credit card debt. What you don't know, though, is whether it makes more sense to take out a standard home equity loan or a home equity line of credit, better known as a HELOC.

Which loan product is the better choice? 

What are equity loans?

Building equity is one of the main benefits of owning a home. Equity is the difference between the value of your home and the amount you still owe on your mortgage. If you owe $250,000 on your mortgage and your home is worth $375,000, you've built $125,000 in equity.

Why does equity matter? If you have it, you can take out either a home equity loan or HELOC that is based on the amount of equity you have. If you have that $125,000 in equity, you might be able to take out a loan or HELOC for up to $90,000, for example. You can then use those funds for anything, though many homeowners will use them to cover major home-improvement projects, to help cover a child's college tuition or to pay off credit card debt.

But what's the difference between a home equity loan and a HELOC?

Home equity loans are typically fixed-rate loans that come with a set repayment term. The money from these loans come in a single lump sum that you pay back with regular monthly payments, with interest, until the loan is paid off.

A HELOC is a bit different; it operates like a credit card with a credit limit based on the amount of equity in your home. A HELOC gives homeowners access to a revolving line of credit that they can draw from when needed.

With a HELOC, you'll only pay back what you borrowed. For example, if you have access to a line of credit of $90,000 and you then borrow $25,000 to remodel your kitchen, you'll only pay back that $25,000 that you borrowed.

A HELOC typically comes with two phases. First, there's your draw period, which usually lasts 10 years. During this period, you can borrow funds up to your HELOC's credit limit and make interest-only payments. You can also make principal payments on what you've borrowed if you choose.

Then there's the repayment period, which usually lasts 20 years. During this period, you can't borrow any more money, but instead you must make monthly payments to pay off whatever you borrowed during the draw period.

So, what's the smarter choice?

Unfortunately, there is no simple answer to that question. Whether a HELOC is the right choice for you depends largely on what you need money for.

If you need a specific amount of funds for an individual project or goal, such as a home renovation or paying off your credit card debt, a home equity loan might be a better choice. That's because you receive one lump sum of money that you can use to fund these expenses.

But if you want access to a source of cash that you can use whenever expenses pop up, then a HELOC might be the better choice. Maybe you plan on renovating your home, but you want to tackle a series of projects one at a time. With a HELOC, you can borrow what you need to, say, renovate your kitchen before moving on to borrow more to add a master bathroom.

The best move is to speak with your mortgage lender about whether a home equity loan or HELOC is the better choice for you.

Posted by Wolf Parlar

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What our clients are saying  

Mr. Parlar is one of the most ethical and honest agents I have ever worked with! I have used many agents in my 20 year Real estate investing and I must say, after meeting him online a few years back, I only use his service and handle my financing needs through him whenever I need to obtain financing. I appreciate his care and handling of transactions as though it's his own. I highly recommend him to anyone who want to use his service. Bought in Los Angeles, CA and West Hills CA and sold in Palmdale, CA and Frazier Park CA.

 

~ Michael A. Murtada

We have found Wolf via internet and usually we don't use companies that were not personal referrals, but from very beginning, Wolf came across so professional, very knowledgeable and very honest, that we felt comfortable doing business with him. He helped us sell our townhouse and we were very happy with everything - his response time to our questions, the way he handled the buyers and their agent, his negotiations skills/opinion/input on the deal. We would absolutely recommend his services to our family, friends and others. Sold in Calabasas, CA Sold In West Hollywood, CA Bought in Marina Del Rey, CA

 

~ Lara Goldberg

We listed our property for sale with Wolf. It was our first experience selling. We interviewed brokers in our area to list, and found Wolf to be very professional and knowledgeable, putting us at ease. After signing the contract, he made the process very streamline and simple. Wolf has an excellent team, from photographer to escrow. He was able to get multiple offers within days, and we are very happy with the selling price. I highly recommend Wolf, as he has been a great asset to us! Bought in Long Beach, CA

 

~ Gary Gwin

Wolf was there for me every step of the way. He was reliable, knowledgeable, and very good at what he does. My investment property is beautiful and the transaction went smoothly from beginning to end. I highly recommend him and look forward to working with him again in the near future. Bought in Los Angeles, CA

 

~ Alex Evan

I would highly recommend Wolf V. Parlar after my experience in buying our new condo. RESPONSIVE, RESPONSIVE and did I mention RESPONSIVE. During our search we came in contact with numerous agents but Wolf was the one that made himself available 24/7. He was always a phone call, text, email or meeting away. He was knowledgable, very well prepared and anticipated our needs through the whole process. He gave guidance and strategy throughout our offer and counter offer. He was "on it" from start to finish and always generous with his time. We closed escrow several weeks ago and this morning received an email from him following up and making sure we are happy, which we are. Wolf is dependable and very professional, and I would happily recommend him. Thank you, Wolf! Sold in San Pedro, CA and Bought in Huntington Beach, CA

 

~ Hyun Joo Kim

Wolf had contacted me a couple of years earlier, when I was considering buying a home. He was very knowledgeable and helpful. When I was ready to buy a home, I got into contact with him again. His knowledge helped me go through the process smoothly. He came to show me the property and offered useful insight into the neighborhood. He then negotiated down the sales price. He also brought his home inspector after the offer was accepted. We were able to get some money for the repairs. The escrow closed in about a month. Wolf does his paperwork with electronic signatures, which speeds up the process. The overall process was smooth and efficient, thanks in large part to Wolf. Bought in Paramount, CA

 

~ Gokhan Esirgen

It was an absolute pleasure working with Wolf (and Will!) during the entire buying process. Customer service was excellent (prompt response, very knowledgeable of the market and he negotiated on my behalf so I didn't overpay for my property, in fact, I saved $5k+). We looked at many homes together and he pointed out all of the flaws of the homes; it definitely shows that he cares and isn't looking to make a quick commission. Even when I wanted to make an offer on a home, he would advise me to keep looking because he knew there was something better out there. And he was right because we just closed on a beautiful home! Truly truly truly happy with the service that he provided. I would recommend him to everyone I know. Bought in Hawthorne, CA

 

~ Nancy Phan

I would highly recommend Wolf V. Parlar after my experience in buying our new condo. RESPONSIVE, RESPONSIVE and did I mention RESPONSIVE. During our search we came in contact with numerous agents but Wolf was the one that made himself available 24/7. He was always a phone call, text, email or meeting away. He was knowledgable, very well prepared and anticipated our needs through the whole process. He gave guidance and strategy throughout our offer and counter offer. He was "on it" from start to finish and always generous with his time. We closed escrow several weeks ago and this morning received an email from him following up and making sure we are happy, which we are. Wolf is dependable and very professional, and I would happily recommend him. Thank you, Wolf! Bought in Hollywood, CA

 

~ Joan Dyer

With regards to selling of my property in Culver City, California Mr. Wolf Parlar and Parlar Realty Company has demonstrated excellent organizational and negotiation skills during the opening and closing processes for the sale of my condominium. Based on his honesty and attention to detail I have no hesitation to recommend he and his company to other potential real estate buyers and sellers. Sold in Culver City, CA

 

~ Eugene Meyer

Amazingly responsive and highly intelligent real estate agent of our dreams. Wolf fought and negotiated for us, and used his savvy expertise to help us move seamlessly from our original home to the house of our dreams. He was available night and day, and explained any doubts we had very thoroughly. He scoured the listings for us, and was immediately available to show us any properties we asked about within hours, not days. His connections within the industry made our successful offer on the house we wanted possible. Through his skillful negotiation, he helped to convince the seller of our new home that we were the family to choose. He was outstanding from start to finish, and we would recommend him without hesitation. THANK YOU WOLF! Bought and Sold in Los Angeles, CA

 

~ Lynn Ellias

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