Once you’ve owned a house for a few years and built some equity up, you can borrow against it. This type of loan is called a home equity loan or you can take out a home equity line of credit. While often this type of loan is used for major home improvements and renovations, you can actually use it for anything: college expenses, traveling, paying down debt, etc.

Since you’re borrowing against the value of your home, it’s considered a secure loan. Your home is the collateral. Both options are essentially a second mortgage. So what’s the difference?

A Home Equity Loan offers you a lump sum of money up front. You then pay this off over a predetermined period of time as a fixed monthly payment. This option is good for a one-time immediate need, such as building a new deck. The interest rate is almost always lower than a credit card and the interest you pay on a home equity loan is often tax deductible (consult a tax advisor first).

A Home Equity Line of Credit (HELOC) is a revolving line of credit up to a certain amount that you can draw on up to a certain number of years. As you need money over a longer period of time you can pull as you need it. Generally there is a minimum payment due each month, but you can usually pay off as much as you like. Just like the Loan, the interest rate is almost always lower than a credit card and the interest you pay on a HELOC is often tax deductible (consult a tax advisor first). This option is good for ongoing cash needs like college expenses, or many different ongoing renovation projects.

No matter your needs, there is often a home equity option we can help you with.

We get lots of questions about Home Loans and our resident expert, Mary Beth Geglia will be sharing the answers to some of the most common ones with us on the blog.

What is a Home Equity Line of Credit (HELOC) and what are good uses for it?

A Home Equity Line of Credit is a line of credit against your home. It differs from a Fixed Home Equity loan in that every time you make a payment on the HELOC, the money can be reused. Some examples of when this might be the right kind of loan for your are:

• A child going away to college when you’ll need to send a different payment amount multiple times per year.
• When you have multiple purposes for the money and you don’t need all the money at once. For example, putting in a pool one year, a deck the following year, and a vacation the third year.

You can make the payments on one project at reuse the money again when other projects come up. You’re also only making payments on the money you’ve drawn against it, not the entire amount.