With the equity you’ve built up in your home over the years, you could be sitting on a lot of money! When you’re ready to put your home’s equity to work, you may be wondering which option is best for you – a home equity loan or a home equity line of credit (HELOC).
One of the most common misconceptions is that home equity loans and HELOCs can only be used for home improvements. These loans can be used for a variety of needs, including:
- Consolidating high-interest debt
- Financing a college education
- Buying a new car
- Taking a dream vacation.
- & More
Choosing the loan option that’s right for you starts with an understanding of equity.
What is Equity?
Equity is the difference between the value of your home and the remaining unpaid principal balance of your mortgage. For example, a home worth $250,000 with a principal balance of $100,000 remaining has $150,000 in equity. (We have calculators to help you determine your equity.)
What's the difference between a Home Equity Loan and a HELOC?
Home Equity Loan is a one-time loan for a fixed dollar amount at a fixed interest rate with a fixed term of repayment. This type of loan has a predetermined monthly repayment amount and an amortization schedule for up to 15 years. Home equity loans are great for specific, one-time purchases like a new car or a home remodeling project.
HELOC– is a variable-rate loan that can be drawn down, either all at once or at different times. You can borrow up to the credit line maximum, but you’ll only pay interest on the funds you use. For example, if you’re approved for a $50,000 equity line but only borrow $15,000 right now, you are only charged interest on the $15,000. Once you have repaid the amount borrowed, your credit line is fully renewed and available for borrowing again. Our HELOCs feature a 15-year draw period. HELOCs are a smart way to pay for recurring expenses like college tuition.
A First Commonwealth, we can help you determine whether a home equity loan or line of credit is the best option for you. You can learn more about home equity today and even start your application online.