Which is better? It depends on your needs. When deciding whether to take out a Home Equity Loan or Home Equity Line of Credit, consider your goals, your payment schedule, your spending habits and your risk tolerance.

Home Equity Lines of Credit are Variable

A Home Equity Line of Credit is a set loan amount based on the equity in your home. The advantage of a Home Equity Line of Credit is its flexibility. It’s like a revolving loan – you can borrow what you need when you need it, repay it and borrow again. It’s available to you whenever you need it, and allows you to borrow only the amount you need.

When embarking on a multi-year home improvement project for instance, a Home Equity Line of Credit is perfect when various stages of payments are required. At the same time, it’s just nice having a line of credit available when you decide to redo your landscaping or see the furniture you’ve always wanted on sale. Having the flexibility to borrow when you want is very empowering for a homeowner. You get to decide when it’s time to tackle your projects or splurge a little.

The interest rate for a Home Equity Line of Credit is variable because you can borrow it at any time during the life of the line, often called the “draw period.”

When Should I Use a Home Equity Loan?

In contrast, a Home Equity Loan is a fixed loan. Based on the equity in your home, you borrow a fixed amount with a fixed rate of interest and the money is disbursed at one time, with set payments. Unlike a Home Equity Line of Credit, you cannot reuse a Home Equity Loan. It is best used for a one-time goal or project for which payment is due in full. For instance, a loan makes sense if you want to fund a specific home improvement project that requires full payment at or during completion. A Home Equity Loan is also perfect if you want to pay off high-interest credit card debt.

Which type of Home Equity will you choose? The answer to this question is seldom black and white. Find out if a fixed loan or a line of credit is best for you by talking to a loan officer at Chelsea State Bank.