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HELOC vs Home Equity Loan for new garage construction?

JFox418
Regular Contributor

HELOC vs Home Equity Loan for new garage construction?

Bought our home a little over 2 years ago and the one thing it was missing that we really wanted was a shop/garage. It's looking like this years prices are coming down enough to consider my options for a new build and I'm curious what might be the best way to fund it without dumping a bunch of cash up front. 

Are there any preferences between a HELOC or Home Equity Loan? I've done a little reading and it seems like the HELOC would be on profile for a long time. HEL would be more like a personal loan but benefit from being secured and lower interest right? Are there big differences in repayment options? 

 

We have about $50k of equity in the home and only looking to use maybe $20-$25k for the new garage.  

11.05.21 - EX 767 / EQ 774 / TU 762 %56 UTIL $43.1K CL (WIP) 
CURRENT - EX 796 / EQ 816 / TU 812 %16 UTIL $98.7K CL

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VALoanMaster
Valued Contributor

Re: HELOC vs Home Equity Loan for new garage construction?


@JFox418 wrote:

Bought our home a little over 2 years ago and the one thing it was missing that we really wanted was a shop/garage. It's looking like this years prices are coming down enough to consider my options for a new build and I'm curious what might be the best way to fund it without dumping a bunch of cash up front. 

Are there any preferences between a HELOC or Home Equity Loan? I've done a little reading and it seems like the HELOC would be on profile for a long time. HEL would be more like a personal loan but benefit from being secured and lower interest right? Are there big differences in repayment options? 

 

We have about $50k of equity in the home and only looking to use maybe $20-$25k for the new garage.  


Generally HELOCs are variable rate loans with interest only payments and are set up like a credit card where you can pay it down and reuse it. The downside with a HELOC is that they're typically tied to the prime rate and the Fed Reserve is forecasting at least 3 rate increases in 2022. Since the rate is variable you're looking at 3 rate increases the 1st year.

 

A HEL is a fixed rate loan with terms that vary from a 15 year fixed to a 30 due in 15 balloon. The rate and payment will typically be higher than a HELOC.

 

VA Mortgage Expert. Mortgage Banker lending in All 50 States.
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