Home Equity Loans vs. Lines of Credit: How to Choose What’s Right for You

Home equity loans and Home Equity Lines of Credit (HELOCs) both let homeowners tap into the value of their homes to fund expenses. But each borrowing option has its own pluses and minuses, depending on your circumstances and needs. 

Let’s compare, contrast, and zoom in on which solution might be the right fit. 

Is This a Second Mortgage?

First Things First: Yes, in simple terms, taking out a loan against the equity in your home — the difference between its current market value and what you still owe on your mortgage — would be a second mortgage. That’s true of both a home equity loan and a HELOC.  

To get approved for either, lenders generally require you to have at least 15% to 20% equity in your home. Let’s say your home’s current market value is $300,000. Your mortgage balance, including whatever you’re looking to borrow now, would need to be under $240,000 to cross a 20% equity threshold. 

Those are two of the key similarities; HELOCs and equity loans start to differ more once you get into the details. 

Home Equity Loan Basics

Specifics can vary based on your equity, your market, your credit, and your lender, but with a typical home equity loan, you’ll have: 

  • A fixed interest rate (your payments stay the same through the whole loan term) 
  • Upfront disbursement (you get the loan amount as a lump sum) 

HELOC Basics

A home equity line of credit (HELOC) is a little more like a credit card than what most of us think of when we hear the word “mortgage.” You have access to a maximum amount of credit and can borrow against the equity in your home as you need to. Specifics vary here too, but usually you’ll have: 

  • A variable interest rate (rates can change depending on market conditions) 
  • Flexible disbursement (borrow as you choose during a defined draw period) 
  • Revolving access (as you repay, credit becomes available again) 

Should You Choose a HELOC or Equity Loan?

The better borrowing option ultimately depends on your equity, your timeline, your plans, and your preferences.  

A home equity loan might be the better fit if you:

  • Hope to fund a larger, one-time expense, like a home renovation 
  • Want stable, predictable payments 
  • Have a comparatively low loan-to-value ratio 

A home equity line of credit might fit the bill if you:

  • Expect ongoing expenses in smaller bursts 
  • Feel comfortable with fluctuating interest rates 
  • Need a lending option with a higher LTV limit (some HELOCs go up to 90%) 

Making a Borrowing Decision

Dizzy from all the details? The Merchants & Marine Bank team can help in a few different ways. 

One: Try out our free HELOC Calculator. It can help put concrete, personal numbers behind these lending and borrowing concepts. 

Two: Talk to our lending experts. Our community bankers are great at connecting individual needs with specific options. If your circumstances line up better with a home equity loan or a HELOC, they’ll tell you why — and if there’s a different personal lending option that makes more sense, they’ll make recommendations. 

Find your nearest Merchants & Marine Bank location and stop by to see us, or reach out to our community bankers online any time.