HELOC vs. Home Equity Loan: Which One is Right for You?

Your home is more than just a place to live—it can also be a valuable financial resource. Whether you're planning home renovations, consolidating debt, or covering unexpected expenses, borrowing against your home’s equity can provide the funds you need.

But should you get a Home Equity Loan or a Home Equity Line of Credit (HELOC)? While both options let you borrow against the value of your home, they work in different ways. Understanding the differences can help you make the best choice for your financial needs.

What Is a Home Equity Loan?

A Home Equity Loan allows you to borrow a lump sum of money upfront, which you repay over time with fixed monthly payments. It’s similar to a traditional loan but uses your home as collateral.

✅ Best for:

• Large, one-time expenses like home improvements, medical bills, or debt consolidation.
• Homeowners who prefer predictable payments with a fixed interest rate.

🔹 Key Benefits:

• Fixed interest rate: Your monthly payment stays the same, making budgeting easier.
• Lump sum payout: Get all your funds at once.

⚠️ Things to Consider:

• You start paying interest on the full amount immediately.
• If you need more money later, you’ll have to apply for a new loan.

What Is a HELOC (Home Equity Line of Credit)?

A HELOC works more like a credit card. You borrow as needed from a set credit limit, only paying interest on the amount you use. The draw period (typically 5-10 years) allows you to borrow and repay repeatedly, followed by a repayment period where you pay off the balance.

✅ Best for:

• Ongoing or unpredictable expenses like remodeling projects or tuition payments.
• Homeowners who want flexibility in how they borrow and repay.

🔹 Key Benefits:

• Only pay interest on what you use: You don’t have to borrow everything at once.
• Flexibility: Borrow as needed instead of taking out a lump sum.

⚠️ Things to Consider:

• Most HELOCs have variable interest rates, so your payments may fluctuate.
• If interest rates rise, borrowing could become more expensive over time.

Which One Is Right for You?

Ask yourself these questions to decide:

❓ Do you need all the money at once?

• If yes, a Home Equity Loan may be the better choice.
• If no, a HELOC lets you borrow only what you need.

❓ Do you prefer predictable monthly payments?

• If yes, a Home Equity Loan offers fixed payments.
• If no, a HELOC’s flexible payments may work better for you.

❓ Are you comfortable with interest rates that may change?

• If yes, a HELOC could be a good option.
• If no, a Home Equity Loan’s fixed rate provides stability.

How to Apply for a HELOC or Home Equity Loan

If you’re ready to tap into your home’s equity, here’s what you’ll need:

• Check your home’s equity – Most lenders require at least 15-20% equity in your home.
• Review your credit score – A strong credit score can help you secure lower interest rates.
• Compare rates and terms – Understand the full cost of borrowing.
• Gather documents – Lenders typically ask for proof of income, home value, and credit history.

Final Thoughts

Both Home Equity Loans and HELOCs offer smart ways to borrow against your home’s value, but the best choice depends on your financial goals. A Home Equity Loan is great for one-time expenses with predictable payments, while a HELOC provides flexibility for ongoing costs.

Before making a decision, take time to evaluate your budget, borrowing needs, and risk tolerance. And remember, Coastal Credit Union is here to help you every step of the way! Our team is here to walk you through the process and find the best solution for your needs.

📞 Have questions? Call us at (919) 420-8000 or visit your nearest Coastal branch to learn more about home equity financing options.