Choosing Between a Home Equity Loan or Line of Credit

One of the many benefits of owning a home is the equity you can build as home values increase. Your home’s equity is the current market value of your home minus the amount you owe. For example, if your home’s current market value is $500,000 and you owe $300,000, you have $200,000 in equity.

Homeowners can use their home equity for a major expense such as a home improvement project, child’s education, or debt consolidation. To do this, you’d need a home equity loan or line of credit. Here’s a little more about each to help you decide which is right for you.

Home equity loan

A home equity loan can benefit you most if you plan to use the money for a one-time occasion and feature:

  • One-time, lump sum of money
  • Typically a fixed-rate
  • Fixed monthly payments – easy for budgeting 
  • Interest may be tax deductible – consult your tax advisor for details

Home equity line of credit (HELOC)

A home equity line of credit could be a good choice if you plan to use the equity periodically, such as for a long-term home improvement project. Features include:

  • Line of credit, similar to a credit card
  • Borrow what you need over a period of time
  • Typically a variable rate
  • Payments vary depending on how much you withdraw and the rate at the time you access the funds
Whichever you choose, a home equity loan or line of credit allows you to use your home equity without having to sell your home. Be sure to do your research so that you understand any fees associated with your loan or line of credit and the amount of equity you are allowed to access. For example, 1st United offers no annual fee and access up to 80% of your home’s available equity, depending on your situation. As always, if you have any questions about which is best for you, reach out to our real estate specialists at (800) 649-0193.