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    HELOC vs. Home Equity Loan

    By Wasatch Peaks on October 28, 2020

    We have great options available to help you use your home equity to finance your projects and goals! Whether you’re looking for a loan or a line of credit, we’re here to help you find the option that best fits your needs.

    What is home equity?

    A home equity loan and a home equity line of credit (HELOC) utilize your house as collateral, allowing you to tap into the equity of your home for funds. Lenders approve applicants for a specific amount of money by subtracting the balance you owe on your mortgage from the home’s appraised value. Your lender will also look at your credit history, debt, and income during the loan qualification process.

    Home Equity Loans

    A home equity loan, secured by your home’s equity, enables you to borrow a fixed amount of money which is received in one lump sum. Typically, these loans offer a fixed term, with a fixed interest rate and monthly payment. A home equity loan is a good way to fund major projects or a single large expense.

    A major benefit of a home equity loan is the fixed interest rate. As a borrower, you’ll know exactly how much you’ll be paying each month, and that payment will cover both the principal loan amount and the interest. These clear terms can help you know what to expect throughout the length of the loan. However, receiving all the funds at one time means you’ll need to pace your spending and know the amount of funds you’ll need upfront. Additionally, you’ll need to be prepared for the payment every month.


    • Fixed loan terms, interest rate, and monthly payment
    • Receive all the funds in a lump sum
    • If used to improve your home, the loan interest may be tax deductible


    • Once the funds are gone, you can’t receive more – you’ll need to pace your spending
    • Credit score is very important for your interest rate

    Home Equity Lines of Credit

    A home equity line of credit is also secured by the equity of your home. A HELOC is similar to a credit card and allows you to borrow what you need from a set amount of money available. This extends over a specified period of time known as the “draw period.” You will then pay back those funds and pay interest on the amount you draw from the HELOC. These loans also have variable interest rates, which means that your interest amount will fluctuate throughout your loan as the market rates change.

    A HELOC provides freedom and flexibility in how you use your money. If you are unsure about the final cost of your project, it’s beneficial to have the option to withdraw money as needed. Repayment options are also usually flexible and monthly payments will vary. Some lenders may require a monthly payment of principal and interest, while others may only require a monthly payment of interest and then a full payment of the loan amount at the end of the draw period.


    • Freedom and flexibility for funds and repayment
    • Borrow the funds you need as you need them
    • If used to improve your home, the loan interest may be tax deductible


    • The interest rate will fluctuate throughout your loan
    • You may need to pay back the full loan amount at one time

    Which is better?

    Now for the big question, which one should you use? Well, the answer depends on you.

    To tap into your home equity, carefully review the pros and cons of each loan and how you’ll use the funds. You may find that you need all the funds for your project at once or that you want to pay for things as you go. Additionally, your budget may be flexible enough for a changing interest rate or you may need a set payment amount. Both a home equity loan and a HELOC can provide a great opportunity for you to utilize the funds tied into your home.

    Wasatch Peaks is here to help you make the most of your home equity. Our home loan specialists can help you find the best loan for you!

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    Wasatch Peaks

    Written by Wasatch Peaks