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Home Equity Loan vs. Home Equity Line of Credit: What's the Difference?

April 25, 2023

Home equity loans and lines of credit are becoming increasingly popular financial tools that allow homeowners to access the equity they have built up in their homes. Heritage Bank offers both options to individuals looking for a way to finance major expenses, such as home improvements, debt consolidation, or college tuition.

According to the President and CEO of Heritage Bank, David Crumhorn, “Home equity loans and lines of credit can be a smart financial decision for people who have built up equity in their homes and need access to cash to fund major expenses. These options allow homeowners to take advantage of the equity they have accumulated, while not disturbing the very low home mortgage rates that many homeowners enjoy in today’s environment.”

One of the primary benefits of an installment type home equity loan is its fixed interest rate, which allows homeowners to budget for their payments without worrying about fluctuations in the market. This type of loan provides a lump sum of cash upfront, making it a great option for a one-time expense like a home renovation, medical procedure, or debt consolidation.

On the other hand, home equity lines of credit (HELOCs) work more like a credit card, allowing borrowers to access funds as needed up to a predetermined limit. This type of arrangement can be useful for those who need a flexible source of financing for recurring expenses, such as college tuition or home repairs. Unlike home equity loans, which come with a fixed rate, HELOCs typically have a variable interest rate, which means payments might fluctuate over time.

While both options provide significant benefits, it’s essential to consider the risks associated with borrowing against your home. Failure to make payments on a home equity loan or line of credit can result in foreclosure, which can damage your credit and put your home at risk.

To determine whether a home equity loan or line of credit is the right choice for your situation, it’s best to consult with a Heritage Bank loan officer. Our experienced team will work closely with you to understand your unique financial situation and provide personalized insights and advice about which option may be best for you.

In summary, as Mr. Crumhorn stated, “Home equity loans and lines of credit can be a valuable financial decision for homeowners who are looking to fund major or recurring expenses. However, it’s important to carefully consider the terms and conditions of these loan options to ensure you’re making the best decision for your specific financial needs.”

Heritage Bank is an equal housing lender.

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