When navigating your home's equity, you may decide between a Home Equity Line of Credit (HELOC) or a Home Equity Loan. While similar, these two differ when determining the most beneficial option for your unique situation.
What is a HELOC?
A HELOC is a line of credit that reflects the equity held in your home. Lines of credit may have a fixed rate for a period of time or a variable interest rate that will allow it to increase or decrease over time, meaning your payment will likely fluctuate as well. Much like a credit card, or standard line of credit, you can borrow from your HELOC, pay it back, and then borrow again. Each month you will pay a percentage of the principal you have borrowed along with interest and pay annual fees during the loan term.
Our HELOCs are straight lines of credit that draw for the loan's entire life. When your HELOC matures or comes due, repay the balance or re-apply for another HELOC or home equity loan. All new applications are subject to underwriting and approval.
HELOCs offer a more significant amount of flexibility in comparison to Home Equity Loans. While a loan requires you to take out the total amount, a HELOC can be used as needed.
What is a Home Equity Loan?
A Home Equity Loan is a loan borrowed against the equity you have built in your home. This type of loan has a fixed interest rate and repayment terms and will not change unless refinanced. Factors that can influence the interest rate are your credit score and home equity position.
With this type of loan, you will receive all the funds in one lump sum when the loan closes, and you will be required to make payments on the loan monthly.
Knowing how much you need to borrow before committing to a loan. Typically, a homeowner must have roughly 15% equity to qualify for a Home Equity Loan.
What option is best for me?
A HELOC may be the right option if you don't know how much you want to borrow, need the flexibility of borrowing as required, and don't mind that your payment could vary based on interest rates.
A Home Equity Loan may be the right option if you know exactly how much you need to borrow and what you need it for, you like the predictability of having the same monthly payment, and you have at least 15% equity in your home.
If you want additional advice on the best solution, speaking to your consumer lender is always a good idea. They can often provide additional, market-specific information that will allow you to make an educated decision about your home equity.