Top 4 Home Equity Loans

For anyone needing to access the equity in their homes, here is a summary of the top 4 types:

1. Conventional mortgage: if you get a conventional mortgage, you’re probably looking at a fixed rate of over 4%. Right now is really not a great time to get a fixed rate on a refinance. If you go with a variable rate, you are looking at around 2.5%.
2. Conventional mortgage + secured line of credit: this would give you the best of both worlds and would be my recommendation. If you qualify for more than you need, take only the amount that you need up front and the rest is available in a low interest (around 3.7% currently) secured line of credit, that you can access anytime you want without re-qualifying, and that you can also convert to a mortgage in the future if necessary. As you pay down the mortgage, the line limit increases by an equal amount.
3. HELOC (Home equity line of credit): the only way I would recommend this one is if you plan on paying it down in a relatively short period of time (<5 years). The advantage of the HELOC is that it is open (you can pay it down as quickly as you like or use it again if needed). The disadvantage is that the rate is higher than a mortgage (around 3.7%).
4. Reverse mortgage: the only way I would recommend a reverse mortgage is if you would prefer or need to keep more money in your pocket at the end of each month. The disadvantage of a reverse mortgage is that the rate is slightly higher than a conventional mortgage. The advantage is that you have no payments; each month instead of the bank making you pay principle & interest payments, they just add it to your “tab”. You pay at the end. The increase in mortgage debt is offset by the increase in the value of your home.

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