Choosing between a Home Equity Loan and a HELOC | The First National Bank Blog

Choosing between a Home Equity Loan and a HELOC | The First National Bank Blog featured image

You need cash and you’ve built up a fair amount of equity in your home. Now it’s time to decide which loan product is right for you—a home equity loan or a home equity line of credit? To answer this question, you need to ask yourself a few more questions:

Is the loan for an immediate, one-time expense or is the financial need ongoing?

For example, imagine everything is going fine until one day the roof caves in—literally. A new roof is all you need, and there are no other large financial icebergs looming on the horizon. If that’s the case, a home equity loan is probably the way to go. On the other hand, if your home is a work in progress and you have two children who are definitely college-bound, a home equity line of credit may be your best option.

How comfortable are you with uncertainty?

Home equity loans carry a fixed interest rate, and that can be reassuring even if the rate is usually higher than those for variable interest rate loans. Since many home equity loans can be paid back over a period from 3 to 20 years, locking into a rate you’re comfortable with is a good idea if you’re risk averse. A home equity line of credit usually links its interest rate to the prime lending rate, which means it can go up and down over time. If you don’t mind weathering rate fluctuations or you have the resources to pay the debt back quickly, a HELOC might be right for you—especially since there’s usually no penalty for paying a HELOC off early.

Do you plan to borrow again?

A home equity loan is advanced to you in one lump sum. When it’s spent, it’s spent. A home equity line of credit allows you to pay down the loan and borrow against the remaining line of credit throughout the draw period (usually 10 years).

How financially disciplined are you?

Are you tempted to treat your home like an ATM? If so, remember that being unable to pay back either type of loan puts your home at risk because you used it as security. If you plan to spend your loan on a lifestyle that isn’t in synch with your paycheck, you may want to re-think borrowing at all. That said, if you have a specific goal in mind for the loan and the ability to comfortably pay it back, talk to your lender.

The First offers competitive lending rates and works with you to determine which type of loan best meets your needs. Find out more at: or

Which do you think is the best value, a home equity loan or a home equity line of credit? Share your opinion by leaving a comment.