HELOC or Home Equity Loan

[Peter Szilagyi]

Currently have about $200k-$300k of equity that I am looking to tap into, but not sure if I should go HELOC or Home Equity Loan (5% for 20 years fixed).

I don't have a property ready to go, but would use about 25% to make home improvements, so I would be sitting on the majority of the capital for at least 2-3 months (up to 6 at most). That would lead me to going with a HELOC. However, in the event it takes me 6 months to move on a property, is anyone worried that credit markets tighten or home prices sink enough that banks start to freeze untapped HELOCs?

[Scott E.]

Generally speaking, I'd recommend somebody in your situation go with the HELOC since you don't need all of the money right away.

The biggest risks are rates going up since most HELOC rates move with the WSJ prime rate, and then as you said it's technically possible the banks start to freeze untapped HELOCs.

Even with those risks, I'd still recommend the HELOC. I believe it to be highly unlikely that the banks start freezing HELOCs. I only see this happening in the event of a massive, 30%+ crash in the real estate market. And the WSJ prime rate still remains pretty low at 4.75%, so the rates on these loans aren't as bad as you'd think.