The Difference Between Home Equity Loans and Lines of Credit - and How to Choose
Your home is one of your most valuable assets and one of the perks of being a homeowner is having the ability to build home equity. Home equity is the difference between the remaining mortgage loan amount and the current market value of your home, and it continues to grow overtime as you make monthly payments on your loan. It may also increase if the value of your home rises. For example, in 2020, the average homeowner in Ohio, Michigan, Indiana and Pennsylvania gained $20K of equity in their home. Homeowners can borrow against their home’s equity for home renovations, debt consolidation, college tuition, a vacation or unexpected expenses. We want to make sure you can make an informed decision when it comes to picking the right type of loan, so let Premier Bank explain the difference between the types of home equity financing, and how to choose the right one for your needs.
Home Equity Loans vs Home Equity Lines of Credit
There are two different ways that consumers can borrow against the equity in their home: a home equity loan or a home equity line of credit (HELOC). Home equity loans and home equity lines of credit are considered secure loans that use the borrower’s home as collateral. Both borrowing strategies provide homeowners with immediate access to funds, which are repaid according to the loan or line of credit terms. So, what’s the real difference between the two?
- A home equity loan gives the borrower a single lump sum of money that is paid back at a fixed rate and monthly payments.
- A home equity line of credit (HELOC) gives the borrower a revolving credit line that can be continuously drawn upon and paid back as needed. This is sort of like a credit card, but usually with better rates. The monthly payment fluctuates as borrowers spend more or less.
Which is Right for You?
The best way to borrow will be based on your money management preferences and how you plan to use the funds. If you prefer predictability and fixed payments then a home equity loan may be the better option. This can be particularly helpful when you have a defined budget and need to pay for certain large expenses such as college tuition, car repairs, or even debt consolidation. If you prefer flexibility and don’t mind balancing the books every month, then a HELOC might be right for you. This can be useful if you are taking time off to travel or doing home renovations and need to pay multiple contractors. Don’t worry if you’re still unsure which option is best for you, our lenders at Premier Bank will work with you to find the perfect solution.
How to Get a Home Equity Loan or Line of Credit
You can apply for a home equity loan or line of credit from your local Premier Bank. Your approval will be dependent on your home loan-to-value-ratio, creditworthiness and other factors decided by your lender of choice. Apply online or contact a lender at Premier Bank to get started today!
Offer of credit is subject to credit approval.