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September 14, 2016

Home Equity Loan vs. Line of Credit

Every year, millions of people set goals and resolutions to become more fit. Many of these aspirations have to do with losing weight, eating better, or just becoming a healthier person in general. This year, Kohler Credit Union is paving the way for people like you to become fit… when it comes to your finances and financial decisions. We are proud to introduce our Financial Fitness series of blog posts… aimed to help others manage their finances, borrow smarter, grow their money and protect their future. Ever wonder what the difference is between a home equity loan and a home equity line of credit? Read all about it in our latest blog post below.

Equity built up in your home can be a valuable asset. When you need cash for almost any reason and you have equity in your home, a loan or line of credit is one of your best options. Used wisely, your home’s equity can make it financially possible to do more of the things that are important to you.

Appealing borrowing qualities include inexpensive closing costs, fast turnaround, low interest rates and easy access to funds. And at Kohler Credit Union, qualified members can borrow up to 90% of the home's equity (the appraised value of your house less the amount of any outstanding mortgage balance).

So, which do you choose—a home equity loan or line of credit? Both leverage the value of your home, but each have their distinct advantages:

  • A Home Equity Line of Credit (HELOC) is an open-ended mortgage account used like a credit card. If you expect recurring expenses, such as payments made to contractors during home renovation, a HELOC allows you to "pay as you go." You are only charged interest on amounts drawn against your credit line and can spread out your use of a HELOC as needed rather than borrowing the full amount and paying interest on it in advance of your needs. A HELOC also allows the flexibility of having funds available without having to pay until you draw against your credit line which can provide ready cash in case of an emergency. Benefits include:
    • Low, adjustable interest rates (rate varies monthly with the Prime Rate).
    • Access funds whenever you need them—you’re in charge.
    • Pay interest on only what you use.
    • Re-use available funds as you pay down your balance.
    • No annual fee.
    • Tax deduction potential (consult your tax advisor).
    • Good uses for a HELOC include: home improvements, vacations, small projects.
  • A home equity loan provides a lump sum repayable over a fixed period. Traditionally termed a ”second mortgage”, these loans are perfect for those who require a specific amount of money and want loan balance stability. If you have a large one-time expense or want to consolidate a specific amount of debt such as paying taxes, tuition or consolidating other high-interest loans, a home equity loan is a great choice. Benefits include:
    • Affordable fixed rates.
    • Fixed monthly payment with payment options to fit your budget.
    • No annual fee or prepayment penalties.
    • Convenient online application process.
    • Tax deduction potential (consult your tax advisor).

Good uses for a home equity loan include: college tuition, debt consolidation and major purchases.

Kohler Credit Union’s loan representatives can help determine how much equity you have available and if a loan or line of credit would work best for your needs. If you have questions before you’re ready to apply, call 888.528.2595. Or, apply now with Kohler Credit Union’s quick and easy online application.