If you’ve recently bought a home or owned one for a while, you know that you’ve made a long term investment. Three important coordinating pieces of your investment worth mentioning are your home equity, home equity loans, and home equity lines of credit (HELOC). 

What is home equity? 

Your home’s equity is the difference between the cost of what you could sell your house for and the amount that you still owe on your current mortgage. This amount can be a valuable asset to you as a homeowner because it provides the opportunity to borrow with home equity loans or use home equity lines of credit (HELOC). 

What is a home equity loan?

If you have a larger expense that you would prefer to pay down in monthly payments, a home equity loan may be the right choice for you. A home equity loan, simply put, is a single lump sum disbursed by a lender that you begin paying back at a fixed interest rate for the full term of the loan. 

Home equity loans can be used for a number of things such as: 

  • Home renovations and additions
  • Credit card debt 
  • Outstanding bills
  • Down payment on property 
  • Family vacations
  • Financing a wedding or large event

So, then what is a home equity line of credit (HELOC)? Aren’t they the same thing? 

No! Unlike a home equity loan, a home equity line of credit (HELOC) works similar to a credit card. When you open a HELOC you can take out as much money (up to your credit limit) as you would like during the draw period (which is usually up to 10 years). Just like your credit card, while you pay off the principal amount on your HELOC the credit boomerangs back for you to use again (as needed). 

While home equity loans are always positioned at a fixed interest rate, HELOCs can be paid through interest-only payments or a combination of interest and principal payments. You must pay the interest and principal balance that remains after your HELOC’s draw period.

If you’re looking for a lump sum disbursement with fixed payments over a fixed term, a home equity loan is probably a good financing option for you. However if you prefer the potential of a lower variable rate, interest-only payments during your draw period  and a rollover credit, then a home equity line of credit (HELOC) may be best.

Need more clarification?  Talk with a banker today at 800.526.9127 or visit our website at https://republicebank.com/is-a-home-equity-line-of-credit-right-for-me/ 

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