Thinking about upgrading your kitchen? Dreaming of a backyard oasis or finally tackling that long-awaited home addition? Or maybe you’re planning a big event like a wedding or want to start a small business from home.

If you’ve built up equity in your house, you may already have the perfect tool to help fund these exciting goals without taking out a traditional loan. Two popular ways to tap into that equity are through a home equity loan or a home equity line of credit, also known as a HELOC.

Understanding Home Equity

One of the biggest financial advantages of homeownership is the ability to build equity. Equity is the portion of your home’s value that you actually own — the difference between your home’s market value and the amount you still owe on your mortgage.

For example, if your home is worth $300,000 and your remaining mortgage balance is $200,000, you have $100,000 in equity. That equity can be used as a resource when you need funding for major expenses.

Home Equity Loan: A Lump-Sum Option

A home equity loan is sometimes referred to as a second mortgage. When you take out this type of loan, you receive a lump sum of money up front. You then repay the loan in fixed monthly installments over a set term, typically at a fixed interest rate.

Best suited for: a one-time, specific expense such as tuition payments, debt consolidation or a major home renovation with a defined budget.

Key features:

• Fixed interest rate
• Predictable monthly payments
• Lump-sum disbursement

A home equity loan may be a good choice for borrowers who prefer stability and want to know exactly what they’ll owe each month.

HELOC: Flexible Funds When You Need Them

A home equity line of credit, or HELOC, functions more like a credit card than a traditional loan. You’re approved for a credit limit, and you can borrow from it as needed during what’s known as the draw period, usually lasting 5 to 10 years.

If you’re approved for a $60,000 HELOC and borrow $15,000, you’ll only owe interest and payments on that amount. The remaining $45,000 is still available if you need it later.

Best suited for: ongoing or variable expenses such as multi-stage renovations or as a safety net for unexpected costs.

Key features:

• Variable interest rate often tied to the prime rate
• Flexible access to funds
• Interest charged only on the amount borrowed

Many homeowners use HELOCs as an emergency fund or to manage costs that come up over time.

Which Option Is Right for You?

Choosing between a home equity loan and a HELOC depends on your personal financial needs, comfort with interest rate changes and how you plan to use the funds.

Consider a home equity loan if:

• You know exactly how much money you need.
• You want a fixed interest rate and predictable monthly payments.
• You’re funding a large one-time project or expense.

Consider a HELOC if:

• You need access to funds over time.
• You’re comfortable with a variable interest rate.
• You’re unsure how much you’ll need or want a financial safety net.

Final Thoughts

Both home equity loans and HELOCs can be valuable tools for homeowners. Before choosing one, take a close look at your budget, spending habits and long-term financial plans. Since your home is used as collateral for both types of borrowing, it’s important to borrow only what you can comfortably repay.

Looking for a HELOC? We've got you covered. Visit our Home Equity Line of Credit page to get started today.