3 Questions to help you decide between a HELOC and HeLoan

Many homeowners with low mortgage rates want to stay where they are for the near future. If that’s the case for you, you can use your home equity to fund home renovation projects which may improve your home value for when the time comes to sell.

Home equity can also fund medical bills and surprise expenses and help pay off high-interest debt. Home equity loans (HeLoans) and home equity lines of credit (HELOCs) are two forms of low-interest rate financing that allow borrowers to access equity without selling their homes.

Equity is the calculated difference between the current market value of the residence and the principal balance owed on any loans secured by the property. 

But should you consider a HELOC or a HeLoan? Here are three questions to help you decide.

1. Do you have a specific expense in mind?

If you know how much you need, you might consider a home equity loan: a fixed-rate loan with predictable monthly payments. 

A HELOC is generally preferred for projects that don’t have a fixed price and/or are financed in stages, like a home renovation. With a HELOC, you borrow what you need up to the approved limit. As you repay the funds, they become available again to borrow. During your draw period, you also only pay interest on the amount you borrow.

With a HeLoan, on the other hand, you receive your funds in one lump sum with a set repayment amount.

2. Can your budget comfortably adjust to a changing monthly payment?

If the answer is yes, then the flexibility of a HELOC might be the better option. As with credit cards, eligible borrowers are approved up to a specific credit limit. Borrowers can use as little or as much of the available balance as needed as long as they do not exceed the credit limit threshold.

HELOCs have the added benefit of allowing borrowers to make interest-only payments during the draw period based on the borrowed amount.

3. How is your credit health?

Your credit health can play a significant role in the interest rate assigned to your loan. The higher your credit score, the greater the likelihood of receiving a favorable interest rate.

You can visit annualcreditreport.com*** to request a free copy of your report from each of the major credit reporting bureaus and start to understand how to improve your credit. 

If you’re an Elevations member, use the SavvyMoney tool in your digital banking account to view your credit score, get tips on how to improve it, and create an action plan.

The Bottom Line

Using a HELOC or Home Equity Loan can be a smart financial move for many homeowners looking to reduce costs and save money. However, it’s crucial to have a strategy or purpose before you borrow to ensure the funds will improve your financial situation.

Without a plan or goal for the funds, borrowing against the equity in your home may add to an already strained household budget.

For more advice that’s custom to your situation, contact a member of our home lending team. To preview how your HELOC payments may look, use our calculator below.

Calculate my HELOC

All credit union loan programs, rates, terms and conditions are subject to change at any time without notice. Rate may change dependent on credit qualifications and underwriting factors. Please speak with an Elevations representative for more information. Offers of credit are subject to membership requirements and credit approval.

***Links to a third party