If you are in the market for either a HELOC loan or an interest only mortgage and find it hard to decide which way to go, you might like the following information to help you make up your mind.
Attractive features of a HELOC loan
The most attractive feature of a HELOC loan is the ability to borrow on demand. It allows you to have access to your line of credit, enabling you to make withdrawals on your own leisure.
Unless you draw funds from your HELOC, you will not need to pay any interest either. This is very useful for people who might need extra funds at some stages in their lives. You might want to do a big renovation, go on the vacation of your dreams or pay your children’s college tuition with your HELOC.
Because your home equity determines your interest rates, these are generally low and might not vary much than if you were to borrow money for an interest only mortgage.
Interest only mortgage specifics
On the other hand, you might be better served with an interest only mortgage if your financial needs are immediate. With usual lower rates than HELOCs, interest only mortgages will allow you to live the lifestyle of your dreams now while paying the minimal interest rates every month.
This option will give you more room to build collateral over time, allowing you to save more money.
Comparing the two - HELOC vs interest only mortgage
The best part about interest only mortgages is that they offer you access to your home equity without having to pay back the principal loan amount each month. This allows you to use your home’s equity without pressurizing your monthly budget.
On the contrary, a home equity line of credit or HELOC loan does offer you similar options and freedom but with the added convenience to withdraw cash on ATMs, or in the form of credit card facilities. This however could lead you to excessive spending habits that might cost you dearly over time.
Another step to consider is that of refinancing your existing mortgage if you were to choose an interest only mortgage. This could impose further fees and you should inquire about this with your mortgage lender before deciding what’s best for you.
Whether you end up choosing a HELOC or an interest only mortgage entirely depends on your own financial situation and what you intend to do from hereon. To find the best HELOC see our earlier article.