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What Is the Difference Between a HELOC and a Home Equity Loan?

What Is the Difference Between a HELOC and a Home Equity Loan?

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Buying a home is one of the biggest investments you’ll ever make. As such, it requires a great deal of financial planning and consideration. Once you’ve made it through the initial process of closing on a home, there are still financial decisions to make, both in the near future and far down the road.

One of the most important questions homeowners face is how to finance the improvements, additions, or unexpected expenses they encounter over the years after buying a home. Many people choose to tap into the equity of their home, with the two most common methods being a Home Equity Line of Credit (HELOC) or a home equity loan.

It’s natural to have questions about the home loan process, particularly if you’re a first-time homeowner. Landmark National Bank is here to help you understand everything there is to know about home equity financing. In this blog, we’ll explain what the difference between HELOCs and home equity loans is to help you determine which is the right option for you.

Home Equity Line of Credit (HELOC)

A Home Equity Line of Credit, commonly known as a HELOC, is a flexible form of borrowing that allows homeowners to access funds based on the available equity built in their homes. With a HELOC, homeowners are granted a credit line, similar to a credit card, that they can draw from as needed. The amount available in the credit line depends on factors such as the appraised value of the home and the remaining mortgage balance.

Home Equity Loans

A home equity loan provides homeowners with a lump sum of money upfront, which they must repay over time. This type of loan is sometimes referred to as a second mortgage because it is secured by the equity in the home. Home equity loans may have fixed interest rates and loan terms, allowing borrowers to know exactly how much they need to pay each month.

Benefits of a HELOC

One of the key benefits of a HELOC is its flexibility. Homeowners have the freedom to use the funds for various purposes, whether it’s home improvements, debt consolidation, or unexpected expenses. Additionally, with a HELOC, borrowers have the option to borrow and repay multiple times throughout the “draw period,” which typically spans around 10 years. During this period, homeowners only need to make interest payments, making it an attractive option for those seeking lower monthly payments.  However, if you don’t make any payments toward the principal, you’ll have to pay the entire principal balance at the end of the 10-year term.

Furthermore, HELOCs often come with lower interest rates compared to other forms of borrowing, such as personal loans or credit cards. This can save borrowers money in interest payments over time. Additionally, the interest paid on a HELOC may be tax-deductible, making it a potentially attractive option for those seeking tax benefits.

Benefits of Home Equity Loans

While HELOCs offer flexibility with a long borrowing period, a home equity loan is more consistent and predictable. Unlike a HELOC, where borrowers have access to a revolving credit line, a home equity loan is a one-time borrowing opportunity often used for larger expenses, such as major renovations, medical bills, or educational expenses. Since the funds are received upfront, borrowers have a clear understanding of the loan amount and repayment schedule from the start.

Moreover, home equity loans can be used strategically for debt consolidation. By using the loan proceeds to pay off higher-interest debts, such as credit card balances, borrowers can potentially save money on interest payments and simplify their finances.

Handle Your Finances Confidently with Landmark National Bank

When comparing the benefits of a HELOC vs. a home equity loan, it’s important to assess your financial situation and goals carefully. Each option offers unique benefits that cater to different needs. To navigate through these decisions confidently, it’s advisable to consult with a trusted financial institution like Landmark National Bank.

Our friendly and experienced team is ready to guide you through the borrowing process, ensuring you understand the differences between a HELOC and a home equity loan. Landmark National Bank offers competitive rates, flexible terms, and personalized service to help you make informed decisions that align with your goals.

Take control of your finances and explore the possibilities of leveraging your home equity. Find the closest Landmark National Bank to you or give us a call to learn more about our HELOC and home equity loan options.

What Is a Home Equity Loan?

What Is a Home Equity Loan?

Two people shake hands over a home loan contract, which sits next to a clay model house.

Building equity in your property is an essential part of getting the most out of homeownership. Equity is the difference between the value of your home and the amount you owe on your mortgage. Unlike other assets that may fluctuate in value, your home’s equity tends to increase over time as you pay off your mortgage and as your property appreciates.

One of the best ways to leverage the equity in your home is through a home equity loan. While these words may make you feel a bit anxious, Landmark National Bank is here to help you feel comfortable and confident about equity financing. In this blog, we’ll provide a concise explanation of what a home equity loan is and how it works, as well as the many potential benefits it offers homeowners.

Home Equity Loans: The Basics

A home equity loan is a type of home loan that allows homeowners to borrow against the equity they have already built up over the years in their home. It’s also known as a second mortgage, as it’s secured by the equity in your property, much like your first mortgage.

Home equity loans may have fixed or variable interest rates, fixed repayment terms, and predictable monthly payments, making them a reliable and accessible way for homeowners to access cash or consolidate debt. It’s important to note that in order to qualify for a home equity loan, you must have established a significant amount of equity in your home.

Benefits of Home Equity Loans

One of the primary advantages of taking out a home equity loan is that it usually offers lower interest rates compared to credit cards or personal loans. This is largely due to the fact that the loan is secured by the equity you have built up in your home, making it less of a risk for lenders compared to an unsecured loan. On top of that, the interest payments you make on a home equity loan may be tax-deductible, which adds another layer of financial benefit for homeowners. Be sure to consult a tax advisor to learn more about the eligibility for a deduction.

Another benefit of home equity loans is the flexibility and range of options they offer. You can use the loan funds for a wide variety of purposes, whether you need to finance home improvements, medical bills, or even college tuition.

Home Equity Loans vs. Opening a Line of Credit

It’s important to note that home equity loans differ from a home equity line of credit (HELOC), which is a revolving line of credit that works more like a credit card. With a HELOC, you can access the funds as you need them and have the option to only pay interest on the amount that you’ve borrowed during the term.

On the other hand, a home equity loan provides you with a lump sum of cash upfront, which you will need to repay over a predetermined period. Both options have their own set of pros and cons, and it’s important to weigh them carefully before choosing the option that suits your needs.

A couple and their child walk happily outdoors on a sunny day in front of their house.

When Should I Get A Home Equity Loan?

When is it appropriate to consider a home equity loan? If you have significant equity in your home and need to access cash for a major expense, a home equity loan may be an attractive option. You’ll be able to cash out, refinance, and take the next steps.

For example, you might be considering a home renovation project, want to consolidate high-interest credit card debt, or need to cover the cost of a medical emergency. Home equity loans can provide access to significant amounts of cash that you can use at your discretion, making them a popular choice for both first-time homeowners and those with more experience.

Understand the Details of Your Loan

It’s important to understand the terms, interest rates, and repayment options associated with your home equity loan to ensure that it’s the right financial decision for you. It’s also essential to work with a trusted and reputable lender to obtain guidance and support throughout the loan application and repayment process. The friendly team of experts at Landmark National Bank has the knowledge and resources necessary to help guide you every step of the way.

Secure a Home Equity Loan from Landmark National Bank

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A home equity loan can be an excellent financial solution for homeowners who have built up significant equity in their property. It’s a reliable, accessible, and affordable way to access cash when you need it most, and is often a better option than a HELOC or credit card. By understanding how home equity loans work, their benefits, and potential drawbacks, you can set yourself up for financial success now and into the future.

At Landmark National Bank, we’re committed to providing our clients with financial expertise and personalized solutions. Whether you’re looking to take out a home equity loan or explore other financing options, we’re here to help you achieve your financial goals. Find the closest location to you or give us a call to get started today!