Home Equity Loan or Home Equity Line of Credit.  Which is Right for Me?

If you want to use the equity in your home to access funds for home improvement, education expenses, debt consolidation, or other needs, you may be wondering if you should choose a home equity loan or a home equity line of credit.  It might be confusing at first glance, but there are definite differences between the two, and this guide can help you decide which one is right for you.

Home Equity Loan

A home equity loan is the same as a second mortgage and works the same way as a regular mortgage.  You borrow money against your home and pay it off in equal monthly payments for a specific period of time.  Just like a mortgage, if you fall behind on your payments, the financial institution that holds your loan can repossess your house.

Several factors determine the amount of your loan, as well as the interest rate.  These include your credit history, your income, and how much your home is worth.

At Midwest Members Credit Union, we allow you to borrow up to 90% of the appraised value of your home, less than what you owe.  For example, if the value of your house is $75,000, you would multiply that by 90%, which is $67,500.  Then subtract the amount you already owe on your home.  We’ll use $40,000.  The total amount you could borrow would then be $27,500.

Benefits of the home equity loan includes the following:

• Competitive fixed rates and flexible terms
• No closing costs on select plans
• Potential tax savings - the interest may be tax deductible (consult your tax advisor)
• Borrow up to 90% of the appraised value of your home, less than what you owe

Check out our home equity rates or call or stop by for more information.

Home Equity Line of Credit

Like the home equity loan, the home equity line of credit borrows money against the value of your home, but that is where the similarities end.  This is a revolving line of credit, which works more like a credit card.  You are given a maximum amount of credit, and you may use it in smaller chunks whenever you need extra money.  Interest is only applied to the amount you have actually used, and you incur smaller payments than if you borrowed the entire amount.  The home equity line of credit rates are variable, so the payment amounts are subject to change.  We offer a 15-year open line of credit with a 5-year draw period.

Benefits of the home equity line of credit include the following:

• No closing costs on select plans
• Free checks for easy access to your funds
• Potential tax savings - the interest may be tax deductible (consult your tax advisor)
• Borrow up to 90% of the appraised value of your home, less than what you owe

Hopefully this has given you a better understanding of home equity loans and lines of credit.  Please feel free to call or come in to talk to someone in more detail.