HELOC Vs Home Equity Loan: Which is Better?

hey what's going on everyone this is Sam Kwak one of the Kwak Brothers, real estate

investor and entrepreneur and in this video I'm gonna go and break down what

are the main differences between a home equity line of credit versus a home

equity loan which is better which one should you get we're gonna break it down

now before I do be sure to go and subscribe to the YouTube channel as well

as hit the bio icon so that you get notified in our future videos I'm gonna

go and say right out of bat that home equity loan and hold my equity line of

credit are not the same thing and a lot of time there are misconception that

people sort of interchange the terminology including Dave Ramsey so I'm

gonna go and break down what are the differences and let's go and start with

you home equity loan a home equity loan is amortized and what that basically

means is that you have a set number of years that you have to pay that loan off

completely and a lot of times the home equity loan payoff period can vary

anywhere between five to thirty years so if you have a five year amortized home

equity loan whatever amount that you borrowed you gotta have to pay it off in

five years and many times you pay a fixed monthly payment every single month

until you hit zero on that balance the monthly payment will consist of the

principle amount and the interest amount on that loan the other thing about home

equity loan is that it's closed and it basically means is that you get the

entire loan amount upfront and when you make your monthly payments to your home

equity loan you can't get your principal mountian back whereas a home equity line

of credit which I'm gonna go and explain further you can reuse that money

whenever you make a payment against the home equity line of credit so with the

home equity loan you get all the money upfront you make monthly payments to it

pretty much like a mortgage and you can't reuse the money that you pay into

the home equity loan with your home equity loan a lot of time at second

position basically what that means is that a lot of individuals that use a

home equity loan or borrow using a home equity loan they already have an

existing mortgage that's well into being paid off or they're halfway there and

they're just getting another loan on top of their existing loan mortgage and that

is known as second position alone and I'm personally not a big fan of a home

equity loan for obvious reason it just adds more debt you get all the money

upfront and a lot of times people are using it for rehab and making upgrades

or remodeling their home which can or cannot be good it really depends on the

situation but generally I'm not a big fan of a home equity loan because it

takes away the flexibility as well as some liquidity and I'm gonna share with

you guys what that means now let's go on that home equity line of credit side the

main thing when it comes to a HELOC is that it's not amortized although it can

be but the way that we're going to show you how to use a HELOC it's not gonna be

amortized keylock uses what's called the average daily balance a lot of people

like to use a lingo simple interest the way that the interest is calculated on a

HELOC is bit different than your home equity loan some may argue it's the same

I like to argue it's different because your balance on your home equity line of

credit can change pretty much on a daily basis

speaking of daily basis it is revolving meaning you can pay back whatever the

balance that you've incurred on your HELOC and reuse any principal portion of

the heal on let's say you had $10,000 balance on your key lock you made a

$5,000 principle payment you can go and reuse that $5,000 that you put in on the

HELOC so it's revolving it's kind of like a credit card with the HELOC it can

be second position or it can also be first position so what that basically

means is that you can get a HELOC a home equity line of credit on top of your

existing mortgage but you can also replace your existing mortgage with a

first position he lost all that you owe basically is a HELOC

which can give you a lot of flexibility so a home equity line of credit is

definitely not the same thing as a home equity loan two different loan products

they do different things I love using the home equity line of credit because

again you can pay back reuse pay back and reuse and a lot of applications such

as using the home equity line of credit to go and buy rental properties creating

more income creating more passive income cash flow of course I don't condone

using any of these either loan products to go on a Vegas trip or buy a new car

or buy a vacation home I don't condone any of that which I think Dave guys like

Ramzi we agree but I do like using these tools these types of loan tools to go

and acquire income producing assets which could help you make more money

could increase your income could increase your your personal net worth so

you could do a lot of beautiful things if you as long as you use it the right

way now can you do some damage with the HELOC yes you can you can do things with

the HELOC that could put you in a very tough situation could get you in some

trouble so make sure you get some education and knowledge behind using a

home equity line of credit because obviously you can do some damage if

you're abusing it right it just like anything use the home equity line of

credit wisely and I hope this gives you guys a better understanding of the

difference between a he loan versus a home equity line and credit the next

video that I definitely recommend that recommend that you guys watch is how to

pay off your mortgage within five to seven years and that videos right here

click on it it's right there I you know you don't have to go anywhere click on

that video and watch how you can save up to two-thirds of your time and your

money by using our unique strategy and it's going to be lots of a cool thing so

going to flea check that out and I'll see you guys in that video