HELOC Vs Home Equity Loan: Which is Better?

What is the difference between a HELOC (Home Equity Line of Credit) VS a Home Equity Loan? Are they the same thing? Which is Better? We'll address those questions in this video! Enjoy!

Let's first talk about the Home Equity Loan. A Hom Equity Loan is very similar to your traditional mortgage in ways that:
A.) You get all the money upfront at the loan closing.
B.) It is amortized anywhere between 5 to 30 years,
C.) It is closed-ended loan meaning that you can only pay back the loan and you typically have a fixed monthly payment and
D.) Home Equity Loans are typically borrowed as a 2nd position lien/loan.

I'm personally not a big fan of the Home Equity Loan as it restricts you from being able to access the equity all over again much like the HELOC and unlike the HELOC products, Home Equity Loans are usually a "one-off" loan product that's often used to spend money on education, home improvement, and personal spendings which can or can't be good.

In comparison, a HELOC (Home Equity Line of Credit) is a revolving line of credit. You can:
A.) Access the funds, pay it back, and re-use the principal portion of the HELOC. This is called being open-ended.
B.) The Draw period of the HELOC is NOT amortized which is useful when using our Debt Free Acceleration strategy to pay off your amortized loans.
C.) HELOCs use a different interest calculation versus the amortized interest calculation which can be used as an advantage when using our Debt Free Acceleration Strategy.
D.) HELOCs CAN be 1st or 2nd position lien on your property which offers some flexibility with the amount of equity you build for later investment purposes.

As you can see, I'm a bigger fan of the HELOC when USED PROPERLY and WISELY... A HELOC can be dangerous and destructive to your financial well-being WITHOUT the proper education on how to use such tool. Remember, no loan product is ever "bad". The user of the loan product makes it bad through their lack of financial literacy, awareness, and education.

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The Kwak Brothers are millennial real estate investors who have acquired over 82 Units of Rental Units and have raised over $20,000,000 of capital for their real estate deals. They are based out of the Chicago-land area and they are dedicated to helping hard-working people become financially free real estate investor! They specialize in owner financing acquisition and raising capital. They are the creator of the FORCE Strategy (Find the deal, Owner Finance It, Raise the Capital, Cashflow It, and Expand your Financial Freedom)

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Video Created by:
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---DISCLAIMER--- The suggestions, advice, and/or opinions that are given by Sam Kwak (The Kwak Brothers) are simply opinions. There are no guarantees of set outcomes. Listeners, guests, and attendees are advised to always consult with attorneys, accountants, and other licensed professionals when doing a real estate investment transaction. Listeners, guests, and attendees are to hold Sam Kwak, Novo Elite, Inc. and the Kwak Brothers brand harmless from any liabilities and claims. Not all deals will guarantee any profit or benefits. Listeners, guests, and attendees are to view and listen to all materials and contents furnished by the Kwak Brothers as a perspective based upon experience.

[TheKwakBrothers]

What do you guys think of our Comparison? Is there anything missing? Do you have any new questions?

[skoopqueen]

I didn’t achieve financial freedom until I turned 40. As a US citizen, I raised capital by taking out a home equity loan. The interest rate was much lower than other loans, which made it a smart choice. With patience and discipline, I reinvested my earnings and avoided impulsive decisions. This strategy helped me grow my wealth, eventually allowing me to buy a new home and a car. If you’re looking to raise capital and achieve financial freedom, consider this approach.

[jimheard]

GREAT VIDEO. 5 mins is a good consumable length. I didn’t realize the Heloc was similar to a credit card. Good info, thanks!

[missdeeva]

Thank you this was the most concise and easy to understand HELOC. We are planning to use a HELOC to build a new construction home since our current home is mortgage free and this was very helpful

[nicolewilliams]

I’m taking underwriting courses and this was soooo helpful to me. Thank you!

[Alessandro]

Thank you for the very thorough explanation. I was under the impression that these loans were one in the same. Glad I decided to do some research and learning that they are 2 different approaches. The HEL doesnt sound like something I'd ever do once I start my investment journey. However, the HELOC, sounds more feasible. So thank you.

[LaFranceHart]

Excellent video Sir.... Question: My home ( a 4BR 2BA) is valued at about 150 to 175K. I own it free and clear. I want to refurbish my home and turn it into a 6 occupancy Resident Assisted Living Home facility. Based upon your clear definition of the 2 types of loans, would it be safe to say that a HELOC would be my best choice??

[mikewaddell]

HELOC can be canceled at anytime if the bank wants to with a loan you you have that money already.

[pareneesc]

Thank you for breaking it down easily.

[alexbolduc]

Kwak Brothers, this is my first time watching your videos. You broke this down very simple and easy for me to understand. Great job and I will be watching! 👍🏽

[renshawjoshua]

One major difference you don’t cover is that HE loans are fixed rate; while a HELOC is by definition adjustable rate since it the interest is calculated as prime rate + how ever many points your agreement details.

It’s important to understand if you are trying to access a large sum of money that you don’t plan to pay for years; that the HE rate will not change over time; but the HELOC definitely can; and that rate could become better or worse depending on various factors such as the economy and housing market changes, your personal credit score changes, changes to prime rate and FED decisions, etc

[yucak]

Good content, good luck with your channel

[tjsg]

Thanks for explaining and I appreciate it a lot.

[LAB-ffpj]

Would your opinion on these options change if the home is completely paid off?

[tomTom-lbcu]

Awesome video. After watching this video it made my mind clear. Im purchasing a home where I only have 1/2 the new homes value in cash outside of a retirement account. Which has been mostly taxed over the years as it was in a mutual fund, I do have the money to pay cash but it’s in a IRA and would be taxed heavily. So I’m thinking just this morning to try the HELOC for the other half until I sell my now home I’m living in then pay it off. That I just paid off. Im old that’s the only reason my house is paid off and IRA savings just a hard general type worker not an educated man. Sound like a good decision ?

[IndieBassJA]

Great video! I'm doing my research before asking my parents, but they own a home apart from primary residence free and clear; they only pay taxes. I'm wanting to house hack in the near future and was thinking of asking my parents for either a HELOC or HE Loan, for my reserves and closing costs, and save money for my down payment using an FHA. Is this a good idea? Thanks!

[TorontoRealEstateAgent]

Thank you for sharing this super informative video! 😊🙏🏼

[TKLMotoVlog]

Hi, so quick question. We did your method to pull a heloc and paid off the house with the equity. My wife fixed rate the HELOC balance to lock in the rate. However, we noticed we can’t withdraw from it now after paying down the new HELOC balance.

[yolandasong]

Tax deductibility comparison should be included.

[Workfourit]

Thank you I been thinking about Heloc but don’t know much about it. I wanted to seeing it was a good idea for me to get a Heloc on my current home (first home I owned) and buy another home for us to live in and rent out the my current home. I would really appreciate your feedback. Thank you for the video