OfflineI applied for a local credit union and just purchased my 1st home that I intend to rent out to pay down the delinquent taxes. My credit union discussed with me how it could be a good chance I could get a home equity line-of-credit or a home equity loan once i bring in my deed and pay 250 bucks for the inspector. What's the difference between the 2? Which is usually best?
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A Heloc is a line that you can draw from (similar to a cc) You pay based on the balance that you have actually utilized. (ie. you have a line with a limit of $100k, but you've only borrowed $50k, then your monthly payments would only be based on the $50k that you're utilizing.) At all the banks I've worked for, helocs are a 20 year product, where the first 10 years is the draw period and the last 10 is considered the pay period (where you cannot access funds). A home equity loan is issued in a lump sum and and you pay a fixed amount with a fixed rate for a certain amount of time (similar to a vehicle loan). Heloc's are variable rates that adjust with the Prime rate and home equity loans are fixed. Now, the rates on heloc's are a little better than the loans. As far as which is best, depends on what your goal is.
Hope this helps
Lenee
www.allstarhouses.com
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As stated in the above post, HELOCs are an open line of credit (similar to a credit card with your house as collateral) and a home equity loan is a lump sum with a set term and payment (many times known as a 2nd mortgage).
Investors frequently use HELOCs to finance short term debt or other investments. This is a great program because once you pay back the initial amount borrowed, the equity once again is available to borrow. Whereas when you pay off a home equity loan, the loan closes and you would need to reapply for the funds.
Either way, I would use the equity to immediately payoff your back taxes. Those taxes are going to rack up interest and fees that could easily become higher than the interest rate on a HELOC - and if you do not pay them back fast enough, they can foreclose on the property.