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Home Equity Loan vs. Line of Credit

March 2, 2020

Finding the solution that works for you

Both a Home Equity Loan and Home Equity Line of Credit (HELOC) involve borrowing money against the equity you’ve built up in your home. Each has its own benefits, depending on how, and when, you plan to spend the money, as well as how you’ll pay it down. While often this type of loan is used for major home improvements and renovations, you can actually use it for many different purposes: college expenses, traveling, paying for a wedding, paying down debt, and more.


What is Home Equity?

Home equity is the difference between your home’s fair market value and the outstanding (remaining) balance of all liens on your home. As you make payments on your mortgage, or if your home’s value increases, your equity grows. We can help you determine your home’s equity. Since these two home equity solutions mean borrowing against the value of your home, they’re considered secure loans, with your home as the collateral. Each option is essentially a second mortgage. 


What Are The Benefits of a Home Equity Loan?

A home equity loan has a fixed amount, with a specific payment schedule, so repayment is predictable. It can often be combined with your original mortgage to simplify monthly payments at a fixed interest rate. If you’re approved, you receive the entire amount up front. This can make a Home Equity Loan preferable for a large purchase like a new pool, or to pay off a one-time expense like a wedding. The interest can also offer potential tax benefits (consult your tax advisor).


What Is A Home Equity Line of Credit (HELOC)?

A HELOC is a revolving line of credit, with a maximum amount from which you can pull from up to a certain number of years, with a variable interest rate, similar to how a credit card works. It also provides for draw period extensions, meaning you can continue to borrow from the line.


What Are The Benefits of a Home Equity Line of Credit?

If you receive approval for a HELOC, you can decide when to use the available funds. As you need money over a longer period of time, you can draw as you need it. After you withdraw funds, you’ll have a minimum repayment due, though you can usually pay off more. While a Home Equity Loan provides immediate funds for a one-time larger purchase, a HELOC is generally recommended for purchases made in smaller amounts, such as home renovations spread out over weeks or months. The interest on a HELOC may also offer you tax benefits (consult your tax advisor), depending on what you use it for.


Not Sure What’s Right For You?

A number of factors go into deciding which home equity solution will work for your needs, budget, and lifestyle. We can help you decide which Home Equity Option is best for you. If you have any questions, give us a call at 315-735-8571 or if you are ready to get started click below.

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