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August 19, 2019

Home Equity Loans: Perks of Open-End and Closed-End Loans

A stack of money sitting next to a miniature house with a pen and notepad

There are several smart reasons for borrowing against your home’s equity, whether it’s to pay down debt, make a large purchase, or renovate your home. But how do you know if you’re better off with an open-end home equity line of credit (HELOC) or a closed-end home equity loan?

When to apply for a HELOC

Choosing a HELOC makes sense if your ultimate goal is one or more of the following:

  • Flexibility with the amount you borrow. HELOCs are open-end loans, which means you can continually borrow up to your limit as you choose.
  • Long-term availability. You can continue drawing on your line of credit for up to 10 years, while a home equity loan provides one lump sum.
  • Flexible access. Easily transfer funds from your line of credit to your savings or checking account with just a few clicks in Online Banking. You also have the option to access your line with checks or by phone.
  • Low monthly payments. The minimum monthly payment of a HELOC is calculated based on 1% of the outstanding balance.
  • Lengthy home improvement projects. If you know you’re in for a major renovation spanning months or years, a HELOC can help you save money along the way since you won’t be paying interest on unutilized funds.

 

When to choose a closed-end home equity loan

You might want to consider a home equity loan if you prioritize any of the following:

  • Fixed maturity date. Because a home equity loan is closed-end (like an auto loan, for instance), you know the exact payoff date. This provides a predetermined exit strategy and helps you plan for the future.
  • Fixed interest rate. A home equity loan with a fixed interest rate helps make the future a little more predictable. Most HELOCs, on the other hand, have low introductory rates and then switch to variable rates based on Prime.
  • Fixed payments. There’s no need to constantly adjust your monthly budget as your balance—and your monthly payment—goes up and down. With a home equity loan, you know your exact monthly payment for the duration of the loan.
  • Flexible repayment terms. We offer 3- to 20-year loans, allowing you to choose the terms that work best for your budget.

 

Ron Kidd is MIDFLORIDA Credit Union’s Senior Vice President of Consumer Lending. With 25 years of experience in consumer lending, Ron has helped thousands of Central Florida residents make sense of their financial future. His team can do the same for you! Apply online for a HELOC or home equity loan, or visit one of MIDFLORIDA’s branches.