Home Equity Loans & Home Equity Lines of Credit

Understand Which Is Your Best Option

Home Equity Loans & Lines of Credit

Home Equity Loans and Home Equity Lines of Credit (HELOCs) are two types of loans that allow homeowners to use their home equity. While these loans share some similarities, they can differ significantly regarding flexibility, interest rates and the borrower's credit score.

Home Equity Loan

A home equity loan is a second mortgage. It allows borrowers to access the built-up equity in their homes. It is disbursed to borrowers in a lump sum upon closing.

These loans are helpful for fixed expenses such as:

Debt consolidation
Home improvements requiring immediate payment in full
Large purchases like cars or boats, or splurges like vacations and large weddings

Although these loans work well for some customers, Home Equity Loans may require more paperwork and incur higher closing costs. Speak with a qualified loan officer – like the bankers at your Heritage Bank branch – to determine if a Home Equity Loan is your best option.

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Home Equity Line of Credit (HELOC)

A HELOC is similar to a credit card. Once your line of credit is approved, you may withdraw the funds as you need them. HELOCs can carry variable rates of interest, which can mean changes in payments as interest rates rise and fall. However, many consumers find HELOCs to be a flexible, convenient type of loan. Depending on the terms of your HELOC, you may make interest-only payments until the end of the loan term when the full principle and any remaining interest is due. You may also make payments against the principal of the loan with interest to avoid a large pay-off at the end of the loan.

Many Heritage Bank customers use HELOCs for the following:

Home improvement projects that will take place over several months and require several separate payments over time.
Vehicle purchases.
Emergency funds.

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Comparison of Home Equity Loans and HELOCs

Comparison Chart Table
HOME EQUITY LOANS	HOME EQUITY LINES OF CREDIT
One-time disbursement upon closing	Approved pool of funds available for disbursement over time.
Fixed payments for the life of the loan.	Payments based on amounts withdrawn and the interest charged at that time.
Fixed rate.	Can be fixed or variable.
Preferable for one-time expenses, including debt consolidation and single purchase home improvements like a new HVAC system.	Often preferable for customers planning a project involving multiple bills over time or for customers who want access to a flexible line of credit with an interest rate often lower than a credit card.

Determining the Best Option for You

When deciding between a Home Equity Loan or a HELOC, it is important to consider the following factors:

Immediate need for cash: It could be faster to be approved for a HELOC since there are sometimes fewer requirements.
Financial goals: If you anticipate needing cash in the future or just want the flexibility of accessing cash at some point, then the HELOC option may be your best option.
Repayment plans: Home Equity Loans offer a stable monthly payment over the life of the loan. However, if you use a HELOC, your interest payment is based on the amount withdrawn, similar to using a credit card. You often also have the option of paying only the interest accumulated while paying the principal later.
Credit score: Your credit score will determine your interest rates on both types of loans. However, it is also important to remember that your credit score may be impacted by changes in the loan amount, including variations in interest rates.
Home value: The equity in your home will determine how much you can borrow for either type of loan. You are generally required to have at least 20 percent equity in your home to be considered for a Home Equity Loan or HELOC. The loan ceiling is based on the current market value of your home minus the 20 percent equity.

Consult with your tax preparer or accountant regarding whether the interest you pay for a Home Equity Loan or HELOC can be deducted from your taxes.

Let a Heritage Banker Help You Understand Your Options

Your Heritage Banker is a great resource for making decisions that fit your goals and financial circumstances. They are qualified loan officers or can connect you to qualified loan officers in your branch. Make time for a conversation and share your full financial picture with your banker so you understand the implications of your decisions.

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