Using your home equity loan vs line of credit

adminonFebruary 7, 2023February 19, 2023Leave a Comment

Home equity loan or line of credit (HELOC) — which one’s right for you?

Thinking about making some home improvements this fall — or planning ahead so you’re first in line with your contractors next spring? Then you’re probably on the lookout for affordable financing. One option that could be a good fit: tapping into the equity of your home.

What is home equity financing?

Your home’s equity is the difference between what your home is worth and any debts you have against it (like a mortgage). If you made a big down payment or your home’s value has gone up since you bought it, you might have a fair amount of equity built up. Home equity lending gives you a way to tap into part of this money. It can be relatively easy to qualify for these loans — because your house will serve as collateral — the interest rates are often lower than for other personal loans.

Home equity financing comes in two options:

1. Home equity loan

You’ll borrow a set amount of money at a fixed interest rate and for a set amount of time. In short, it’s very similar to any other type of lump sum loan.

ADVANTAGES: These loans are easy to budget for: You know the amount of your monthly payment and the length of your loan upfront. And a fixed-rate loan could save you money if rates go up over the life of your loan.
DISADVANTAGES: Repayment terms are typically less flexible, which could make a difference if your financial condition changes. And if your project ends up costing more than you borrowed, you would need to reapply for a new loan.

A good fit for home improvements with a fixed price tag, like window replacements or a roof repair.

2. Home equity line of credit (heloc)

This gives you access to a pool of money, but you won’t be charged interest or have to make payments until you actually borrow against it.

ADVANTAGES: Flexibility is the biggest benefit. You only borrow the amount you need, when you need it, and you won’t make payments until you start borrowing. Payment terms tend to be more flexible: you might be able to make interest-only payments and you might have an adjustable interest rate on the money you borrow. At Summit, you also have an option to lock your balance into a low, fixed-rate for more predictable payments on a set timeline.
DISADVANTAGES: It can be harder to build this into your budget as the amount you’ve borrowed could change from month to month. You could also face higher interest payments with adjustable rate loans.

A good fit for a project where the total cost is harder to nail down, like a bathroom remodel, or if you’d like to tackle more than one project. Having access to a line of credit means you won’t have to apply for a new loan each time you need money (as long as it doesn’t exceed the amount of your line, of course!).

And no matter which Summit home equity product you choose, you’ll get low rates and no annual fees or prepayment penalties.

Want to investigate tapping into the value of your home? Get started with Summit lending expert today!

The prices that tenants and buyers pay for housing are drifting further and further apart in Germany, at least in certain regions. This is confirmed by an analysis of a bank.

In many places, real estate purchase prices depend on regional rents. Across Germany, the range now extends from eleven to 72 annual rents that prospective buyers have to put on the table for residential property, as a recent study by a bank makes clear.

The "Wohnatlas 2020" is an annual, multi-part series of studies by Postbank, a brand of Deutsche Bank AG, which deals with the local rents and purchase prices of residential properties. The analysis, which examines the German real estate market under various aspects regionally down to the district level, was currently commissioned by the Hamburg Institute of International Economics (HWWI) for 401 independent cities and districts.

One result of the recently published study is that in 158 of the 401 regions, housing prices are still comparatively moderate, but in major cities they are rising at an above-average rate. As a measuring instrument to calculate the ratio of rents to purchase prices of real estate, the authors of the Housing Atlas use the so-called "multiplier". It shows how many annual rents, on average, it costs to buy a condo in the same region or city. Prices and rents of 2019 were included in the calculations.

Buyers pay between eleven and 72 annual rents for property

With a multiplier of less than 22.5, experts say the purchase price is moderate compared to local rents. "When the purchase price is in this range, buyers often fare more favorably than renters: The low interest rates then allow monthly installments that do not exceed a standard local rent. At the same time, buyers are building up assets. Your own four walls are also a good retirement provision," explains Eva Grunwald, Head of Postbank's Real Estate Business.

Nationwide, the range extends from eleven annual net rents in the Burgenland district in Saxony-Anhalt to just under 72 in North Friesland on the North Sea, which includes the sought-after locations on the islands of Sylt, Föhr and Amrum.

Across the analyzed counties and independent cities, the multiplier averaged 24 in 2019, according to Wohnatlas. For comparison, in 2018, buyers had to put "only" just under 23 annual net cold rents for their own four walls on the table. The conclusion: The purchase prices rise thus more strongly than the rents.

Expensive and cheap regions

There are particularly many regions with a multiplier of only 11.0 to 17.5 in Thuringia, Saxony and Saxony-Anhalt. Likewise favorable districts and counties, where the multiplier is between 17.5 and 22.5, are often found in central and northern Germany. According to the residential atlas, however, a particularly large number of areas with a multiplier of 30 to 72 are located in Bavaria and the coastal regions.

Some major cities such as Kiel, Hamburg, Düsseldorf, Cologne, Berlin, Leipzig, Dresden, Frankfurt, Stuttgart and Munich also have a high multiplier of 27.5 to 72. In Berlin and Hamburg, buyers will have to pay around 36, and in Munich as much as 37, annual net rents. Real estate prices in Hamburg and Berlin have climbed particularly steeply in relation to rents: in the previous year, buyers had to pay an average of just under three years' rent less.

Whether one can already speak of a real estate bubble in the German metropolises, the authors of the housing atlas do not answer in their current evaluation.

24 German cities offer moderate purchase prices

Prospective buyers should take a differentiated look at the supply in cities with more than 100.000 inhabitants, the experts advise. On average, the multiplier here is just under 25 annual rents. More than 30 years' rent is payable for the purchase of an apartment in Rostock, Potsdam, Regensburg and Lübeck, for example.

Buyers will find favorable real estate prices compared to regional rents in the following cities, for example: Gelsenkirchen (multiplier 15.9), Salzgitter (16.7), Bremerhaven (17.5), Duisburg (18.1) or Herne (18.3). "In a total of 24 cities with more than 100.000 inhabitants, the multiplier is below 22.5 and thus below the value that experts regard as the threshold for moderate prices," says the Housing Atlas.

Overall, the study makes clear: Buying real estate is particularly expensive on the coasts and in the Alps; by contrast, good deals offering moderate prices compared to local rents are available in the center of Germany and in some mid-sized cities in the north and in the Ruhr region.

Buying real estate with the help of life insurance

Incidentally, the experts do not believe that the Corona crisis will "lead to major shifts in the ratio of prices to each other" in the coming months. In the long term, there could be adjustments in economically particularly affected and weaker regions. Because this factor could weaken demand for real estate.

By the way, life insurance can be doubly useful for a homebuyer. Here's how it can be used to finance a home. Many life insurers also offer, for example, a home financing loan based on a life insurance policy with a fixed interest rate for a term of 10, 15, 20 or even 30 years. Particularly long terms with fixed interest rates are an advantage in the long term when mortgage rates are low, as they are currently still being offered.

Life insurance, for example in the form of residual debt insurance, can also serve as a safeguard for family members if the borrower dies during the term of the home loan. For example, term life insurance can be structured so that in the event of the borrower's death, there is still enough money for reasonable survivor coverage for the family even after the remaining loan has been repaid.

Alex Tedder, Head and CIO of Global and US Equities, Schroders

As global uncertainty persists and the U.S. bull market begins to show signs of exhaustion, equity market volatility is expected to increase in the coming year and stock selection will continue to gain importance, according to Alex Tedder of Schroders.

Global growth has slowed in 2019, which will most likely continue into 2020. Trade wars as well as political turmoil continue, and economic data have deteriorated around the world, led by purchasing managers' indexes from the industrial and service sectors.

Although the U.S. has already cut interest rates three times in 2019, it is one of the few developed economies with room to cut rates further, says Alex Tedder, head and CIO of global and U.S. equities at Schroders. Whether this will ultimately impact growth remains to be seen. In many parts of the world, such as Switzerland, the euro zone and Japan, interest rates are already negative. In the emerging markets such as Russia, Brazil and China, on the other hand, there is the greatest scope for reductions, as interest rates are still relatively high here.

Shift in market focus

In the short term, the momentum of the U.S. economy is likely to remain strong, according to Tedder. "But as we move into 2020, factors such as capacity constraints, higher input costs and deferred investment decisions will create the template for a gradual slowdown." He expects these conditions to be exacerbated by regime change, as a Democratic victory in the fall election could have a big impact on areas such as health care. US profit margins remain at record levels – with the exception of the energy sector – and are likely to trend downwards in the future. "For example, earnings estimates for U.S. companies listed in the S&P 500 still appear to be quite "sporty," averaging +11% year over year, according to Tedder. In economies that are already in or near recession, such as Germany, Japan and the UK, expectations are more subdued. In most countries outside the U.S., he sees no catalysts for a strong upturn in growth.

Global themes offer long-term investment opportunities

Given the uncertainties affecting the global economy, the range of possible macroeconomic outcomes is quite wide. With the S&P 500 having delivered a total return of 250% (in U.S. dollars) over the past 10 years and global equities more than doubling, it seems reasonable for the equity expert to assume more modest equity returns going forward. Against this backdrop, investors may benefit from focusing on a number of broad, long-term global themes that offer significant positive investment opportunities and, in many cases, are uncorrelated with traditional equity indices.

Impacts of climate change problem will show up in significant financial outlays. For example, Alex Tedder estimates that spending on greenhouse gas mitigation will rise to at least $2 trillion per year over the next 10 years. These costs have to be borne by governments, consumers and, of course, companies.

Within the latter group, there will be a significant number of beneficiaries as part of the shift to sustainability, he said. The energy transition process is already well underway, despite rather weak support from many governments, including the U.S. However, economic sense is prevailing, and the overwhelming cost advantage of wind and solar power over traditional generation sources (see chart) is leading to a massive upswing for many renewable energy companies.

Renewable energy is catching up

The picture is similar within the automotive industry. Tedder explains that electric vehicle (EV) sales will increase here over the next few years due to more favorable regulatory environments in many countries, such as.B. In Norway, with a total ban on the sale of new vehicles with internal combustion engines by 2025, increase enormously. However, the demand itself is ultimately determined by the attractiveness of the products themselves. As they improve, Alex Tedder estimates consumers will certainly move to EVs, just as they have adopted email, cell phones or Internet shopping.

Home equity loan or line of credit (HELOC) — which one’s right for you?

What is home equity financing?

Home equity financing comes in two options:

1. Home equity loan

2. Home equity line of credit (heloc)

Leave a Reply Cancel reply