HELOC vs. Home Equity Loan: What’s the Best Fit for You?

If you’ve built up equity in your home, you may be considering how to put that value to work, whether it’s funding a home improvement project, consolidating debt, or covering education costs. Two common borrowing options are a Home Equity Loan and a Home Equity Line of Credit (HELOC). While they may sound similar, they function quite differently.

Here’s a breakdown to help you decide which option aligns best with your financial needs.

What is a Home Equity Loan?
A Home Equity Loan allows you to borrow a fixed amount of money, paid out in one lump sum. You’ll pay it back over time with consistent monthly payments and a fixed interest rate.

Best for:

• One-time expenses
• Planned projects with set costs (e.g., a kitchen renovation or medical bill)

Benefits:

• Predictable monthly payments
• Fixed interest rate
• Clear payoff timeline

What is a HELOC (Home Equity Line of Credit)?
A HELOC offers more flexibility. Instead of receiving one lump sum, you gain access to a revolving line of credit – similar to a credit card – based on your home’s equity. You can borrow as needed, up to a set limit, during the “draw period,” and repay over time.

Best for:

• Ongoing or variable expenses (e.g., phased remodeling or educational costs)
• Borrowers who want flexibility in how and when they access funds
  

Benefits:

• Borrow only what you need
• Interest applies only to the amount used
• Flexibility to manage changing expenses 

Which One is Right for You?
Both options allow you to use your home’s equity to achieve financial goals, but the best fit depends on your situation. Choose a Home Equity Loan if you value structure, predictability, and have a specific expense in mind. Consider a HELOC if you prefer flexibility and expect expenses to come in stages over time.

Either way, borrowing against your home is a big decision and Caro Federal Credit Union is here to help you make it wisely. Our team can walk you through the pros and cons of each option based on your goals and budget.