"Higher inflation can also result in decreased home values," says Matt Teifke, founder and principal broker of Teifke Real Estate."This means that if your home value drops, you may be unable to borrow as much money against it because lenders want to protect themselves from losses by ensuring the loan amount does not exceed the value of the home.
"Given the choice, I tend to lean towards a home equity loan versus a HELOC due to the variable interest rate in a HELOC and the risk that entails if interest rates rise," says Tyler Gray, CFP, managing director at Sage Oak Financial."But either could have its place in someone's financial plan, depending on their situation."
All else being equal, home equity loans can be a smart choice for big expenses requiring a lump sum upfront, such as debt consolidation. HELOCs, on the other hand, are good for ongoing expenses like paying for a child's education. They allow you to draw from a line of credit as needed, potentially reducing the amount of money you must pay back.
"I would prefer a HELOC in today's environment because of the flexibility," Colin Zizzi, CFP, founder of Zizzi Investments, previously told ."You only pay interest on the amount of the equity line of credit that you actually draw on, whereas on a home equity loan you will be paying interest on the full amount of the loan."
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