Farnoosh Torabi
Written by Farnoosh Torabi
Last updated: Mar.15,2022

Home Equity Loan vs. HELOC

People have a choice to either go for a home equity loan or HELOC to borrow a loan from a bank against the appraisal value of their primary or secondary residence. Both home equity products have the same objective: to ask for a loan against the equity a person has built on their house. But both of these equity products work in a completely different way.

How to choose a home equity loan

Home equity loans revolve around the loan to value ratio, or the house's overall value fewer mortgage payments. These loans have limited terms such as fixed interest rates and set repayment terms. As a result, a person has to pay fixed monthly payments throughout the life of the loan. Moreover, these loans are easily predicted and calculated with the help of a home equity loan payment calculator

It is important to have knowledge of the lender and the terms of the agreement of a home equity loan. For example, will the loan provider charge a prepayment penalty or the different fees and costs linked to the loan, such as origination fee and closing cost?

On the other hand, HELOC stands for a home equity line of credit that allows individuals to borrow when they need an influx of cash. Hence, the person will only return the amount of money that they borrow from the loan provider in the end. Unlike home equity loans, HELOCs have variable interest rates with an option to switch to the fixed interest rate. The length of HELOC is usually between ten to twenty years, and a person has to repay in full.

Since HELOC follows the variable interest rate, the monthly payment to be paid back differs from one month to another. As a result, a person cannot predict the monthly repayment for a certain month. Some perks about Heloc include that they come with less or no fees at all. 

It is important to note that the monthly payments may fluctuate because HELOC follows the variable interest rate. As a result, the bank could seize the house kept as collateral if the borrower defaults on payments. 

How to Choose a Home Equity Loan

A home equity loan is the overall amount of money a person borrows against the equity they have established for the house over the years. The majority of the loan providers allow almost 80% of the loan on a person' s home equity. The remaining 20% account for all the necessary deductions, such as interest payments and leftover mortgage payments. 

A home equity loan comes with fixed interest rates and a loan period that has a radius of five years to thirty years after a loan provider has assessed a person' s financial situation, including credit score, detailed credit report, etc. 

Several banks, loan providers, etc., provide home equity loan services to their users and prospective customers. The home equity loan payments can be used for various services, including renovation of the house and other home improvement projects like expansion, or in certain circumstances, to pay off a debt. 

The article will discuss home equity loan vs. HELOC, along with the home equity loan payment calculator in which we will highlight how to calculate this specific loan. Moreover, we will walk through several loan providers' different home equity loan rates. Also, you will know about Spring EQ home equity loan reviews from its users. 

Let' s look at how a person can calculate home equity for loan purposes.

Home Equity Loan Rates

Different banks offer differing home equity loan rates as they are dependent on several factors: credit score, the amount of equity required by the person against their house, etc. The best rates are for those with the best credit score report and financial standing. And thus, such people qualify for favorable home equity loan rates. 

The companies that provide the best home equity loan rates include the following:

1. Spring EQ

Spring EQ  is a mortgage lender that helps those seeking a home equity loan with an average credit score but having built up equity on their house. The company is known to approve funds effectively and efficiently. Relative to other lenders that provide loan only up to 80% of home equity, Spring EQ provide up to 90%, which is high. 

The following shows a breakdown of what the company asks as requirements and charges their clients. 

  APR

  Beginning from 5.205%

  Loan Amount

  Maximum $500,000

  Loan Term

  5 to 30 years

The loan period depends on the person as the company does not specify it. In general, the repayment period is anywhere between 5 years to 30 years. 

The company does charge several fees, costs, and hidden costs from the clients, including administration fees, appraisal fees, recording fees, and more. 
We will look at Spring EQ home equity reviews from its current users and those previously availed of its services. 

The company has received both favorable and unfavorable reviews, but they have mostly had positive feedback from its clients. As per Lending Tree , the company has a 4.5/5 rating from the customers who provided valuable feedback. 

The reviews prove the company' s customer experience with its clients, which counts for their satisfaction. Some positive reviews include the following:

reviews

reviews

2. Regions Bank

The bank operates across all the major states in the USA, and to qualify for a home equity loan, a person needs to have a house inside these states. Moreover, the house should either be a primary or secondary residence for the individual applying for the loan. 

When individuals apply for a home equity loan from Regions Bank , they will incur mandatory fees. These will include a late fee of 5% of the payment amount that the person owes to the bank, some other fees that include a returned check fee of $15, and an over-limit fee of $29 payable within the due date. 

The bank offers the following to anyone who would qualify for their home equity loan:

  APR

  3.25% - 11.625%

  Loan Amount

  $10,000 - $250,000

  Loan Term

  7 years, 10 years, and 15 years

The bank has a good reputation in terms of customer experience. Since the interest rate is low and has no annual fee, it is ideal for home equity loans. Also, the bank offers a flexible repayment schedule and covers the closing cost. 

3. Discover Bank

The bank is well known for its rewards program for its users and prospective clients. The bank offers various banking services, loans, mortgages, and refinancing schemes. Discover  is famous for granting loans to individuals at low rates in terms of home equity loans, which means less borrowing for the bank. 

The bank offers several perks for home equity loans, including borrowers not paying for any origination fee, application fee for applying for the loan, home valuation fee, or closing cost. These costs are either waived off or covered by the bank. 

Discover offers the following for its customers that have the approval for home equity loans:

  APR

  3.49% - 11.99%

  Loan Amount

  $35,000 - $200,000

  Loan Term

  10 years, 15 years, 20 years, and 30 years

4. Frost Bank

The bank offers a wide range of financial services like checking accounts, savings accounts, loans, investments, etc. Frost Bank  is best for individuals who can pay only low fees for the home equity loan services from the bank. 

The bank looks after its customers that do not have the financial capacity to pay for fees and costs. That is why the bank does not charge its clients with prepayment penalties, annual fees, the cost for applying home equity, along with no closing cost for the loan. The bank looks after its clients.

The bank offers the following features for those individuals that are seeking a home equity loan:

  APR

  Beginning from 4.24% and onwards

  Loan Amount

  $2,000 - $500,000

  Loan Term

  Ranging from 7 years to 20 years

Frost is best for people who only require a small loan, but they can also ask for a relatively more significant amount. 

How to Calculate a Home Equity

It is quite easy to understand how to calculate home equity given that the person owns the house completely and no payments are scheduled now or in future years. In this case, the value of home equity is the same as the appraised value  of the person' s home. The reason behind this is that the individual owns the home free and clear, and no creditor, bank, or other financial institution has any financial say in terms of owning the house. 

However, some calculation is required when the entire payment against the house in terms of mortgages is not paid in full. Under this scenario, the home equity is equal to the house's current appraised value, less the loans and mortgages that an individual will pay in the future. 

Certain vital factors should be kept in mind when doing such calculations. They include:

  • The house' s current appraised value will not be equivalent to an individual' s paid initially. The reason is that the property values fluctuate daily. So it is possible that if the property values have been increasing recently, then the house's current appraised value would also be high relative to its original value. Similarly, if the property values have decreased in recent times, the appraised value would be less than its original value. 
  • The home equity value increases along with the mortgage payments that an individual makes. The reason is that with each mortgage payment, a certain amount of principal is also paid. As a result, the interest part of the payment is returned to the bank or loan provider, thus having no adverse impact on the outstanding balance. 

If a person needs to calculate the home equity loan payment schedule monthly, the following image will help them, as they would only need to enter the detail of their home equity.

We will now look at home equity loan rates provided by different banks.

Conclusion

Individuals have the choice to take help from financial experts to evaluate the appraisal cost of their house to put against for home equity loan. However, almost all the banks provide this service for free, and people can check the home equity loan payment through the bank' s calculator. 

It is wise to check the home equity loan rates from various lenders that provide such loans. Along with that, a person should carry out a due diligence method to compare the terms, cost, fees, and services different lenders are providing for home equity loans.

This article will explain how home equity works, the method to calculate home equity and the different home equity rates offered by lenders. Hence, you can decide which would fit you the best. 

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