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home equity loan vs. HELOC

Whether you’re looking to purchase another property, consolidate your debt, or make some home improvements, you’ve probably heard the terms “home equity loan” and “home equity line of credit” (HELOC) mentioned before. But what does each option entail, and which is the right choice for you? Let’s compare the home equity loan vs. HELOC!

What Is a Home Equity Loan?

A home equity loan has a fixed interest rate, which means the payment stays consistent each month. Because of this, home equity loans are easier to calculate into a budget plan. When you take out a home equity loan, remember that your loan payments will be in addition to whatever you’re already paying for your mortgage.

Home equity loans are excellent for large projects or miscellaneous expenses because it’s a one-time equity draw.

The Home Equity Line of Credit

So, what is the difference between a home equity loan and a HELOC? Well, a home equity line of credit is similar to a home equity loan because, in both cases, you are borrowing money against your home.

While a loan gives you a lump sum of money all at once, a HELOC operates like a credit card. There will be a certain amount of money available to borrow and pay back. However, you decide how much of that available credit you want to use with HELOCs. Then, you will only have to pay interest on the amount of money you took out (not the total amount available).

Remember that even if you do not use the full amount of your HELOC, you can still draw from the line of credit’s balance if needed down the road. HELOCs can be converted to a fixed or variable rate, so always have that conversation with your lender.

Let’s Break It Down! Home Equity Loan vs. HELOC

Now that we understand what both terms mean, we can unlock the positives and negatives of each.

Home Equity Loans

(+) Monthly payments that have a set duration and amount
(-) Taking out all the equity at once can be risky (ex. if the home’s value decreases)
(+) Fixed interest rates

Home Equity Line of Credit

(-) Interest rates may be unpredictable
(+) Only pay interest on the amount you borrow
(-) Can be easier to overspend if you borrow from the HELOC multiple times
(+) Interest-only payments are often offered during the draw period

Home Sweet Home With White River CU

Whatever your next project is, White River Credit Union is here to assist you with your HELOC loan. With 24/7 online approvals, we make the process as easy as possible, no matter what option you choose. When you’re ready to explore our home loan options, click here or contact us with any questions you may have.


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