Both a home equity loan and a HELOC (Home Equity Line of Credit) allow you to borrow against the equity in your home, but they work differently.
Home Equity Loan:
- Provides a lump sum of money upfront.
- Fixed interest rate and fixed monthly payments for the life of the loan.
- Terms typically range from 5 to 30 years.
- Best for large, one-time expenses such as a major home renovation, debt consolidation, or a significant purchase.
HELOC (Home Equity Line of Credit):
- Works like a credit card secured by your home. You receive a credit limit and can draw funds as needed during a draw period (typically 10 years).
- Variable interest rate (some HELOCs offer a fixed-rate lock option on portions of the balance).
- During the draw period, you may pay interest only on what you borrow. After the draw period ends, you enter a repayment period (typically 10–20 years).
- Best for ongoing expenses, projects with phased costs, or as a flexible financial safety net.
Key Considerations:
- Both use your home as collateral, so timely payments are critical.
- Interest may be tax-deductible if used for qualifying home improvements (consult your tax advisor).
- Your borrowing capacity depends on your home value, outstanding mortgage balance, and creditworthiness.
To determine which option is best for your situation, log in to MyRMO or schedule an appointment through MyRMO or by calling us to speak with an Expert.