Demystifying Home Equity: HELOAN vs. HELOC – The Showdown

Demystifying Home Equity: HELOAN vs. HELOC 

At Emprise Bank, we believe taking control of your finances is a powerful step to achieving your goals. One way to do this is by leveraging the equity in your home. This can be a great way to access funds for renovation projects, consolidate debt, or make a large purchase.

You have two main options to tap into your home’s equity: a Home Equity Loan (HELOAN) or a Home Equity Line of Credit (HELOC).  Both can help you fund important goals from home improvements to major purchases, but they work in different ways. Understanding the differences can help you choose the option that best fits your financial plan. 

How Does a Home Equity Loan (HELOAN) Work?

A Home Equity Loan is a great option if you're looking for predictable monthly payments. With a fixed interest rate, you'll have stability and peace of mind knowing exactly how much you'll pay each month during the repayment period.

This is ideal for projects with set costs, and our 6-month revolving, interest-only draw period offers flexibility during the initial period. During this time, you can:

• Draw funds as you need them 
• Make interest-only payments 
• Manage your cash flow strategically 

Once the draw period ends, your balance is converted to fixed principal and interest payments for the rest of the life of the loan, making it easier to budget with confidence. Because you only convert the loan amount you actually used, you don’t pay interest on unused funds if your project or expense comes in under budget.

Use a HELOAN for:

• Home renovations and improvements
• Consolidating high-interest debt
• Major purchases
• Emergency expenses
• College tuition
• Business start-up funds

Pros:

• Predictable monthly payments
• Fixed interest rate for stability
• Ideal for projects with set costs
• Emprise's 6-month interest-only draw period offers early flexibility

Cons:

• Less flexible once draw period ends
• May borrow more than needed if costs are overestimated
• No ability to re-advance funds after initial draw period

What is a Home Equity Line of Credit (HELOC)?

A Home Equity Line of Credit (HELOC) is a great option if you need flexibility to borrow as needed. With a variable interest rate tied to the Prime Rate, your payments can go up or down over time. This means that in a rising-rate environment, your future loan payments may increase. However, if you're comfortable with this risk, a HELOC can provide the financial agility needed to navigate expenses as they arise.

A HELOC works more like a credit card tied to the value of your home’s equity. You get a revolving line of credit, available for up to seven years. You can borrow as much or as little as you need during that time and pay interest only on the amount you use. After the seven years, you move into a repayment period and pay on the loan amount borrowed plus interest.

Use a HELOC for:

• Home remodeling or repairs
• Consolidating high-interest debt
• Tuition and other education expenses
• Unexpected emergencies
• Dream vacation

Pros:

• Flexible access to funds as needed
• Variable interest rate tied to the Prime Rate
• Ideal for ongoing or unpredictable expenses

Cons:

• Variable rate can increase over time
• Monthly payments may change
• Requires financial discipline to avoid overborrowing

What Are the Main Differences Between a HELOAN vs. HELOC?

	Home Equity Loan (HELOAN)	Home Equity Line of Credit (HELOC)
How You Get Funds	Lump sum upfront  or 6 months revolving line of credit	Borrow as needed from a revolving line  of credit for 7 years
Interest Rate	Fixed	Variable (tied to Prime Rate)
Repayment	Fixed payments after draw period	Interest-only during draw period, then principal + interest
Draw Period	6-month revolving, interest-only period	Up to 7 years
Best For	Specific, one-time expenses with known costs	Ongoing or unpredictable expenses
Payment Predictability	Consistent monthly payments	Payments can change as interest rates change
Flexibility	Moderate. Funds drawn only during initial 6 months	High. Borrow, repay, and borrow again during draw period
Risk Considerations	Less risk. Rate and payment stay the same	More risk. Rate and payment may rise over time

How to Choose Between a HELOAN and a HELOC

To make the right choice between a HELOAN and a HELOC, ask yourself:

• Do I want predictable monthly payments? → Consider a HELOAN
• Do I want the flexibility to borrow as needed? → Consider a HELOC

Additionally, consider:

• How each option fits into your budget
• Your tolerance for interest rate changes
• Your overall financial goals

Choosing between a Home Equity Loan and a Home Equity Line of Credit ultimately depends on your financial needs, goals and risk tolerance. If you value predictability and a structured repayment plan, a HELOAN might be the right fit since it offers a fixed rate and payments. If you’re seeking flexibility and don’t mind a variable interest rate, a HELOC could provide the financial agility you need to navigate expenses as they arise. 

Before deciding, consider how each loan option aligns with your financial strategy, the impact on your monthly budget, and your long-term financial health. Whatever your choice, leveraging the equity in your home can be a powerful tool in achieving your goals, offering both security and opportunity. 

At Emprise Bank, we're committed to empowering your financial success. Whether you choose a HELOAN or a home equity line of credit, our loan advisors are here to help you make the right choice and unlock the potential of your home's equity with confidence. Contact us today to learn more.