Home Equity Loan
You can capitalize on the equity in your home witha home equity loan. Home equity loans are a type of second mortgage you pay off with a monthly payment separate from your primary mortgage payment.
Unlike a cash-out refinance, which changes the terms of your primary mortgage, a home equity loan is a loan that places a second lien on your home and carries a separate payment.
Home Equity Loan Pros And Cons
Home equity loans have many advantages, including fixed interest rates, so your payments never change. They have lower interest rates, and you can use the money for any purpose. Some drawbacks of a home equity loan include paying closing costs and making an additional monthly mortgage payment. Because your home is used as collateral to secure the loan, you may be in danger of losing your home if you default on your mortgage payments.
Home Equity Lines Of Credit
Another option is a home equity line of credit (HELOC). HELOCs also use your home as collateral, but they work like credit cards.
Like a home equity loan, the amount of money a HELOC can extract from your home is based on the amount of equity you’ve built in the home. And how you access and repay that money is a little different, too.
Instead of receiving a lump sum of money, a HELOC allows you to borrow against your line of credit for a certain period of time, often for as long as 10 years. The period when you can withdraw money is known as the draw period. You have the flexibility to take money only when you need it.
When the draw period ends, you enter the repayment period, which can last as long as 20 years. During the repayment period, you can no longer withdraw from your line of credit and start to pay off the principal and interest on the remaining balance.
HELOC Pros And Cons
The primary advantages of a HELOC are no closing costs, being able to borrow just what you need when you need it and flexible repayment options. A few disadvantages are recurring fees and potential prepayment penalties depending on your loan and lender. And like other financing options we’ve discussed, you may lose your home if you can’t keep up with your payments.
Personal Loans
With a personal loan, you can take advantage of qualifying in less time – sometimes in as little as 1 – 2 days. And you won’t need to use your home as collateral.
Your lender may offer a high interest rate, but for some borrowers, higher interest rates are worth securing financing in almost no time at all.Rocket LoansSMoffers personal loans ranging from $2,000 to $45,000 if you want to use a personal loan to fund your fix-and-flip.
Personal Loan Pros And Cons
The main advantages of a personal loan are receiving a lump-sum payment upfront and generally faster funding times. Also, you aren’t required to provide collateral to secure the loan. Some disadvantages include added debt and the addition of another monthly payment to your budget.
