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Tapping Home Equity Isn't Limited to Loans. See if a Line of Credit is a Better Choice for You

06/04/18

Your home equity is a valuable asset that you can access for home improvements, to pay off debt or for any reason you choose. Today, there’s more than one way to convert your home’s equity into cash without selling. Understanding which option is right for you is key to making the most of the value you’ve built in your home.

Home equity loans and home equity lines of credit (HELOCs) are two ways to borrow at a lower interest rate by using the equity you have in your home as collateral. But which is right for you?

Key Differences

With a home equity loan, you typically get a large lump sum all at once and then pay back the loan over time. A home equity line of credit works more like a credit card. You are approved up to a certain borrowing limit and you can withdraw money as needed. Even though home equity loans and lines both allow you to borrow at a lower rate than personal loans, there are key differences.

Home Equity Loan

Home Equity Line of Credit

Interest Rate: fixed interest rates available

Interest Rate: fixed or variable interest rates available
Borrowing: receive money in a single lump sum Borrowing: a credit line with a borrowing limit
Payments: make payments based on the full amount of the loan Payments: interest only payments available on qualifying loans

 

Which Is Right for You

The right choice largely depends on how you plan to use your home equity. Because a home equity loan may have a fixed rate, it often offers the lowest interest payments. Fees associated with the loan may be lower as well. This makes a home equity loan the best choice if you are planning to spend the entire loan all at once on a major expense such as home renovations, a large purchase or consolidating debt.

By contrast, a home equity line of credit offers greater flexibility. You can take out money only as needed. And the money becomes available to borrow again once you make payments. This makes it more useful for smaller purchases or as an emergency line of credit that gives you the peace of mind of knowing you have cash available when you need it.

As with any financial decision, the best choice also depends on your personal situation and needs. If it’s a one-time expense, an equity loan may be the way to go. If you need to borrow on an ongoing basis, the line of credit could be the better choice. Either way, we’re here to help you understand your options and make the right decision for your needs.

Pinnacle Bank Home Equity Loans and Lines

When you’re ready to tap into your home equity, talk to Pinnacle Bank . We offer loans and lines of credit, and we can help you find the right option for your needs.