Home equity loan or line of credit?

Home equity installment loans and home equity lines of credit (HELOCs) can be great options for borrowing. With a home equity installment loan, funds are received in a lump sum and paid back over a set period of time. A HELOC, on the other hand, lets you borrow money as you need it and in the amount you need up to a pre-determined limit. In addition, with HELOCs, there’s more flexibility in how much, and how fast, you pay off the balance.

Uses for a home equity loan vs. a home equity line of credit

A home equity installment loan is ideal if you want a large lump sum of cash for a one-time expense, such as a kitchen remodel, or if you want to consolidate debt. A home equity line of credit may be perfect if your expenses will be staggered over a period of time, such as your child’s college tuition or a larger-scale home improvement project that will take several months or years. HELOCs also are useful to have available in case of home repair, medical expenses or some other unexpected event.

Terms for a home equity loan vs. a home equity line of credit

Home equity financing is a low-cost option because there are no closing costs for installment loans or lines of credit. Rates for an installment loan may be marginally higher than for a credit line but the term also is usually longer, so your monthly payments may be similar for both. A HELOC has a variable interest rate based on the Wall Street Journal Prime Rate as published in the Money Rates section. One benefit of a HELOC is that you are only charged interest on the amounts withdrawn against the credit line.

Another HELOC feature to consider

You can lock in your interest rate on balances or new draws with the Fixed Rate Option. When you lock a rate, you’ll have peace of mind knowing the rate will not increase.