Home Equity Loan or Home Equity Line of Credit: Which is Best for You?

If you’ve owned your home for more than five years, then you’ve almost certainly benefitted from an astounding increase in its value. From just 2017 to 2022, U.S. home prices rose by a staggering 40%.

As a result, American homeowners like you are now sitting on more than $28 trillion dollars of equity. And many are actively seeking to tap into that newfound wealth. Indeed, we are currently in the middle of a home equity loan boom.

And it makes total sense. Home equity loans offer a long list of benefits. You can use the proceeds for almost anything. This could include paying off student loans, covering medical, dental or education expenses, or eliminating high-interest credit card balances. It offers a great way to reduce your debt.

You could also use the funds to build a new addition or complete a home improvement project. If spent on upgrades like these, your home equity loan could actually help you increase the value of your home.

So, if you have a list of large-scale projects or financial obligations you’ve been longing to address, you may be considering a home equity loan through VACU. We offer two great options to tap into your home's equity. The question is: Which option will be right for you? Let’s explore to learn more.

How do home equity options work?

Also known as a “second mortgage,” a home equity loan allows you to borrow money using the equity in your home as collateral. Equity is the amount your property is currently worth, minus the amount of any existing mortgage on your property.

Unlike a refinance loan, home equity loans enable you to leverage a portion of the value of your house, as opposed to taking out a new loan to replace your entire first mortgage.

Because home equity loans are secured by property you own, they are viewed as lower risk. This usually translates to interest rates that are lower than unsecured debts like credit cards or personal loans.

And because the repayment schedule tends to be over a longer period of time, home equity loans make borrowing larger amounts easier to repay.

Which will work better for you – a home equity loan or line of credit?

At VACU, we offer both a “lump sum” home equity loan and a revolving home equity line of credit (also known as a HELOC). Both offer distinct differences and advantages.

Your choice of loan type will likely depend on a number of variables, including your long-term goals, your short-term needs, and your personal circumstances. Let’s review each option so you can evaluate.

What is a home equity loan – and how could it benefit you?

A home equity loan provides you with the entire amount of the loan in a single cash payment. This amount must then be repaid on a regular basis over a pre-set length of time. The interest on the full loan amount will be charged after you receive the proceeds.

Home equity loans tend to be for larger projects or expenditures – like a major home remodeling. Some of their major benefits include:

• A fixed monthly payment
• A fixed monthly interest rate
• The ability to get better rates if you choose automatic transfer from your checking account

What is a home equity line of credit – and how could it benefit you?

VACU’s home equity line of credit (HELOC) allows you to borrow, spend, and repay as you go, using your home as collateral. Typically, you can borrow up to a specified percentage of your total equity.

As opposed to our lump-sum home equity loans, a HELOC gives you access to a revolving line of credit once the loan is approved. You will then have the flexibility to use as much of your approved credit limit as you like, and you will only pay interest on the amount that you use.

VACU’s home equity lines of credit provide flexibility with recurring expenses, including home renovations or education-related costs. Some of its major features and benefits include:

• A variable monthly payment
• A variable monthly rate of interest

What are some other advantages of VACU’s home equity options?

Both of VACU’s home equity options offer a host of additional benefits. These include:

• No closing costs.
• Funds can be used for almost any purpose you like, including home improvement, education expenses, debt consolidation, unexpected expenses, and more.
• You can borrow up to 90% of the appraised value of your home, minus the amount of your current mortgage or any other liens.
• A minimum borrowing amount of $20,000.

How can you decide which option is right for you?

Check out the chart below to consider which home equity option can help you achieve your goals. Ask yourself a few questions to determine which option will be best for you. Is the expense you’re looking to cover a one-time expense like consolidating debt or recurring like college tuition or home improvement projects? Would you prefer a monthly payment that’s fixed or that’s based on how much you’ve borrowed?

Apply for a VACU Home Equity Loan or HELOC

If you’re looking for the cash to fund any number of major expenses in your future, then a home equity loan or HELOC from VACU could be an ideal solution. Our helpful team members can answer more of your individual questions and help you determine if you qualify.