When you need to finance a major purchase or project, accessing your home’s equity can be a great decision. Two popular options are Home Equity Lines of Credit (HELOCs) and home equity loans. While both allow you to borrow against your home’s value, they differ in how they work and what they offer.
What is a HELOC?
A HELOC is a revolving line of credit that uses the equity in your home as collateral. You can access cash as needed, making it a flexible option for ongoing expenses.
How Does a HELOC Work?
With a HELOC, you’re approved for a credit limit based on your home’s equity. You can borrow from this line as needed and only pay interest on the amount you use. Typically, HELOCs offer variable interest rates, which means they change over time.
Key Benefits of a HELOC
- Flexibility: Borrow only what you need, when you need it.
- Ongoing access: Reuse your credit as you repay it.
- Lower interest rates: Typically, lower rates compared to credit cards and personal loans.
What is a Home Equity Loan?
A home equity loan provides a lump sum of money, which you repay in fixed installments over a set term. It’s a good option when you know exactly how much you need and want predictable payments.
How Does a Home Equity Loan Work?
With a home equity loan, you borrow a fixed amount based on your home’s equity and pay it back over a predetermined period with a fixed interest rate. This provides an affordable payment plan with regular payments throughout the life of the loan.
Key Benefits of a Home Equity Loan
- Fixed interest rate: Know exactly what your payments will be.
- Lump sum payout: Ideal for large one-time expenses.
- Predictable payments: Regular monthly payments with no surprises.
HELOC vs. Home Equity Loan: Which is Right for You?
A HELOC is best for flexible, ongoing needs like home repairs or consolidating credit card debt. Additionally, if you plan to sell your house soon, a HELOC gives you the option to pay interest only for the first five years, which keeps your payments even lower.
If you prefer a predictable payment structure for a specific project or expense, a home equity loan might be the better option. Consider your financial goals and how much access to funds you need before deciding
.
How to Apply for a HELOC or Home Equity Loan at Nusenda
At Nusenda Credit Union, we make it easy to apply for a HELOC or home equity loan. Our mortgage officers are ready to help you find the best solution for your needs as rates are based on your credit score. Contact our team to learn more or become a member today!
Image Source: SaiArLawKa2 / Shutterstock