Do you own a home and need extra money? Whether it’s home improvements or home repair, consolidating debt, paying for your child’s education, buying a new car, or funding a family vacation, home equity loans and lines of credit offer an excellent way to borrow.

A home equity loan or home equity line of credit (HELOC) uses the equity you’ve built in your home as collateral. It’s an easy way to secure funds that can help you achieve a lower interest rate than a traditional loan. And while both these options could work for you, here’s a quick rundown to help you choose the best one for your needs.

What is home equity?

Home equity refers to the difference between the amount you owe on a mortgage and what the home is worth. Basically, it’s the amount of the home that you own thanks to the mortgage payments you’ve already made – and an asset you can use to secure a loan or line of credit.

What’s the difference between a home equity loan and a HELOC?

A home equity loan is a loan with fixed payments and a fixed maturity date that uses the equity in your home, and works similar to a vehicle loan. Meanwhile, a home equity line of credit is a flexible line of credit, similar to a credit card, which utilizes the equity in your home.

What are the advantages of each?

A home equity loan has the advantage of equal, predictable monthly payments based on your original loan amount and term.

With a HELOC, you can borrow money at any time, for any reason, up to your available credit limit. You can also pay down the balance of your line of credit and draw off it again as needed – with the option of paying interest only when there is an outstanding balance.

An additional benefit of a HELOC is that you can draw more money from it without needing to re-apply. Since home equity loan funds are dispersed as a lump sum, you would need to reapply for additional money. With a HELOC, you’d only need to reapply to increase the maximum borrowing amount of your line of credit.

What are the typical uses of home equity loans and HELOCs?

A home equity loan is primarily used for purchases requiring one lump sum, and can be used to finance nearly anything. Often, it is used for home improvement, debt consolidation, or as a home repair loan.

Since a HELOC allows you to borrow as your expenses occur, it can be used to finance nearly anything. Often, it is used for home repair or long-term home renovation projects.

Are you ready to apply for a home equity loan or home equity line of credit? Here at Hills Bank, we aim to make the entire loan process as easy as possible. You can apply in our locations, over the phone at 1-800-445-5725 (1-800-HILLSBK), or schedule an appointment with our mortgage lenders online.