Home equity loans and lines—Pros and cons and what’s the difference?


A father cupping his daughter's hand which is holding a pink piggy bank.

Equity refers to the value in your home minus the owed mortgage balance. A down payment on your home is automatic equity. As you pay down your mortgage loan and money is applied to principal, you are increasing the value—the equity—in your home. This equity can be used in the form of a line-of-credit or loan to help with funding home improvements, college tuition, loan consolidation, and medical bills among other things.

A Home Equity Line of Credit (HELOC) allows you to borrow up to a certain amount of your equity and enjoy repeat access to those funds as you pay them back. A HELOC usually remains open for a set period of time and may require an initial draw on the balance as part of its terms. This revolving nature makes a HELOC a perfect safety net for emergencies and large recurring expenses like medical bills or college tuition. Because the loan is secured against your house, the interest rate is lower than traditional loans or credit cards.

A Home Equity Loan allows you to borrow a set amount against the equity in your home in one lump sum paid back in installments over an agreed term. For instance, if you have $100,000 in equity in your home, many lenders, including Consumers Credit Union, may allow up to 80% to be borrowed (sometimes called “LTV” or loan-to-value.) You would take all or a portion of your approved amount as one loan and make monthly loan payments over a set repayment term. Terms will vary among lenders, but can typically range up to 15 years.  A home equity loan (fixed term) is ideal when making a one-time investment in a home improvement like a kitchen remodel or paying off a higher interest debt.

For more information on how a HELOC or Home Equity Loan can benefit you, call us at 800.991.2221 or stop into any location and let one of our member service representatives assist you. You can also check out our home equity specials at https://www.consumerscu.org/Loans/HELOC/. 

Regardless of the type of Home Equity loan you choose, all home equity programs offer potential tax benefits. Please see your tax advisor for details.

Source: PSB, our valued partner.

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  1. pennie woodwyk says:

    As long as the home improvements made with a Home Equity Loan are for the home that Loan is made against, are these tax deductable?

    • ConsumersCU says:

      Hey Pennie, the answer could depend on number of factors. We encourage you to reach out to a tax advisor for help with your particular situation.

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