By NICOLE ROTHSTEIN, a contributing writer for Sunrise Banks.
Your home, often your largest investment, can also serve as a valuable financial tool. A Home Equity Line of Credit (HELOC) allows you to borrow against your home’s equity—typically up to 85%—based on your credit history. Equity is calculated by subtracting what you owe on your mortgage from your home’s value.
HELOCs are commonly used for significant expenses like renovations, buying a second home, launching a business, education costs, or debt consolidation.
Jean Chalifoux Kiely, Executive Vice President and Director of Consumer Banking at Sunrise Banks, shared insights on how HELOCs work and how they compare to home equity loans.
HELOC vs. Home Equity Loan
A HELOC offers a revolving line of credit you can draw from as needed, much like a credit card. It has a variable interest rate often tied to the prime rate, so your payments can fluctuate. In contrast, a home equity loan provides a lump sum with a fixed interest rate and monthly payments over a set term.
Chalifoux Kiely notes the flexibility of a HELOC: if you’re approved for $100,000 and only use $50,000, you can borrow from the remaining $50,000 without reapplying. This is especially useful during the draw period (typically 5–10 years). Home equity loans, however, work more like car loans—you receive a fixed amount upfront and repay it over time with predictable payments.
Both options use your home as collateral, meaning failure to repay can result in foreclosure. However, because they’re secured by your home, they usually offer lower interest rates than unsecured loans or credit cards.
Choosing the Right Option
When deciding between a HELOC and a home equity loan, consider your needs:
Purpose of funds: Do you need the money all at once or over time?
Amount: How much do you plan to borrow?
Payment preference: Do you prefer fixed monthly payments or flexible borrowing?
Chalifoux Kiely recommends a HELOC for DIY projects or uncertain budgets because you only pay interest on what you use. If you have a firm quote from a contractor, a home equity loan may be better.
Also weigh current interest rates, closing costs, repayment terms, and your personal risk tolerance. Those uncomfortable with fluctuating payments may prefer the predictability of a home equity loan. However, for disciplined spenders, the flexibility of a HELOC can offer peace of mind, especially if unexpected expenses arise.
“Having that just-in-case fund on hand provides great peace of mind,” she says. “It’s best to apply before starting a project, so the funds are ready when you need them.”
Visit www.sunrisebanks.com/heloc to learn more about our HELOC options.
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