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Understanding the Difference Between a Home Equity Loan and HELOC


Home Equity Loan: At first glance, one might assume a loan is used for the benefit of your home. It’s a logical assessment, and in some cases it’s accurate. You can use a Home Equity Loan, as well as a Home Equity Line of Credit (HELOC), to fund home renovations, home improvements, and all-around home-happy upgrades.

You can use them for much more than that though.

A Home Equity Loan or HELOC can be used for other just-as-awesome goals like paying for education, funding a wedding, taking a dream vacation, or at this point just fill in your version of “I’ve gotta have that!”

Yes, whatever the goal is that you’ve been dreaming about, you can leverage the equity in your home as collateral to make that dream your reality. 

That moment doesn’t have to be the joy of a new kitchen, a loved one getting married, or a made-for-TV dream sequence either. A Home Equity Loan also can be used for debt consolidation, which probably qualifies more as an “Ahhhh moment” (think sigh of relief), which in itself is a significant accomplishment. 

Whatever your goal is, using the equity in your home to achieve it can be a great option. 

Breaking it down to basics:

You can use your home as collateral to get a home equity loan. You can borrow money at a fixed rate that tends to be lower than other loan types. You can access funds in a single lump sum and take as many as 30 years to repay it. Paid interest on the loan can sometimes be tax deductible as well. *

A Home Equity Line of Credit could also be a good option. Like a Home Equity Loan, it uses your home as collateral and also tends to be offered at a low rate. The key differences are while a Home Equity loan is one lump sum at a fixed rate, a HELOC has a variable rate and the funds can be drawn upon as you need them. 

If either of these options feel right for you – or perhaps you just don’t know – reach out to BankNewport and talk to a banker. Knowledge is power, as the saying goes, and that’s why we’re here. We love those “a-ha moments.”