There are benefits and trade-offs to all loans, especially when it comes to paying off major expenses. Both of the home-equity options allow you to borrow against the appraised value of your home, providing you with cash when you need it. Here are some of the differences:
Home Equity Loan
A home equity loan is more like your original home mortgage. You borrow a specific amount, and then you make regular payments during a fixed repayment period. You apply for the amount you need and receive the money upfront in a lump-sum single payout. Interest rates are fixed over the life of the loan so your payments never change.
Home Equity Line of Credit
Unlike a conventional loan, a home equity line of credit is something you establish ahead of time and use when and if you need it. In that way, it’s similar to a credit card, except with a HELOC, your home is used as collateral. You can access as much or a little as you need from your HELOC, whenever you need it, up to the credit limit established at closing. A HELOC gives you the flexibility to borrow against your home equity, repay and repeat. Interest rates are variable and often lower than a home equity loan.
Use the chart below to determine which is better for your needs. As always, your support team at Elements is ready to help you find the product that is best for you—just give us a call at 1-317-542-5055.
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Home Equity Loan |
Home Equity Line of Credit |
What It Is
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Borrow funds using the equity in your home
Loan for a set amount |
Borrow funds using the equity in your home
Revolving credit line for the 10-year draw—use, repay, repeat |
Key Benefits
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Fixed monthly payments |
Lowest interest rate |
APR
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10-year fixed: 8.777%
15-year fixed: 8.977% |
Intro APR for 6 months: 3.99%
Variable APR after 6-month intro period: As low as 8.50% |
A Good Option for a Major or Unexpected Purchase If You
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Own your home
Want money upfront in a lump sum single payout
Want a locked-in fixed interest rate
Want predictable monthly payments that stay the same |
Own your home
Want the flexibility of using funds whenever you need them
Want a lower payment |
Can Use It For
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Best for purchases such as:
- Planned home improvement projects - College - A second home - Debt consolidation |
Anything! Purchases such as:
- Unexpected emergencies - Home improvements - College - That big vacation - A new car - A second home - Debt Consolidation |
No Prepayment Penalties
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No Annual Fee
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Available Amounts
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Whatever your available equity is in your home |
Whatever your available equity is in your home |