HELOCs, Home Equity Loans and Personal Loans

If you’re a homeowner interested in consolidating debt, starting that remodeling project or paying for unexpected expenses, you might be considering different borrowing options such as a home equity line of credit (HELOC), a home equity loan or a personal loan. But which one is the best fit for you?

Here’s a quick comparison of features and terms, along with examples of how they can be used:

HELOC

• Interest rate: variable, but may have an introductory offer with a fixed-rate period
• Loan distribution: draw what you need when you need it
• Payback terms: interest-only payments required during the draw period; monthly payments start after your line of credit closes; flexible repayment options, including segmenting a fixed rate portion
• Best for: large projects or expenses; debt consolidation

Home Equity Loan

• Interest rate: fixed
• Loan distribution: one lump sum
• Payback terms: monthly payments start immediately; fixed payment each month with a completion date to the loan
• Best for: large projects or expenses; debt consolidation

Personal Loan

• Interest rate: fixed
• Loan distribution: one lump sum
• Payback terms: monthly payments start immediately
• Best for: small to medium expenses ($1,000-$40,000); debt consolidation

Here’s more of a deep dive into each loan type if you still have questions or want more details.

Home Equity Line of Credit (HELOC)

A home equity line of credit (HELOC) allows you to tap into your home’s value to cover big expenditures or unexpected costs. It’s essentially a line of credit based on how much of your home you actually own (current market value minus what you still owe). With a HELOC, you can borrow what you need, when you need it, up to your credit limit. And because the loan is tied to the value of your home, HELOC interest rates are often more favorable than those of traditional lines of credit.

Advantages:

• Flexibility: HELOCs are super convenient — kind of like borrowing with a credit card. You can spend up to your limit every month, or nothing at all. It’s entirely up to you. At UW Credit Union, you can lock in the best fixed interest rates up to five times during the term of your line.¹
• Pay as you go: During the draw period, the set time frame for withdrawing funds, you only pay interest on the amount of money you use. This gives you more freedom over how much you pay and when you pay it. But keep in mind that once the draw period ends, the loan converts to a repayment schedule, and both principal and interest payments are due every month.
• Tax advantages: Interest on HELOC funds used to purchase, build or substantially renovate your home may be tax deductible (consult your tax advisor).

When it’s right:

HELOCs are smart for large projects that need to be done in phases, big expenses, or emergency funds, when you want flexibility in repayment options and you want to keep the line open to use as often as needed for unforeseen events. Examples of how people use HELOCs include home improvements, consolidating debt, educational costs or paying medical bills. Explore UW Credit Union’s current rates.

Home Equity Loan

Like a HELOC, a home equity loan is secured by your equity, or how much of your home you own. However, with a home equity loan, you receive one lump sum with a fixed rate for terms of up to 15 years.

Advantages:

• Low interest rates: Because there are valuable assets backing the funds, interest rates on home equity loans are typically lower than other types of loans.
• Stable: Your loan’s rate, term and amount are all fixed, so you can rest easy knowing your payments will stay the same and your rate won’t go up.
• Tax deductible: Interest on home equity loan funds used to purchase, build or substantially renovate your home may be tax deductible (consult your tax advisor).

When it’s right:

Home equity loans are great for larger purchases or investments where you want a fixed, monthly payment which will pay down and close the loan — especially if you’ve built up substantial equity in your home. Examples of different uses include home improvements, debt consolidation, emergency funds or educational costs. Explore UW Credit Union’s current rates.

Personal Loans

A fixed-rate personal loan is a great way to take control of your finances. Because it’s an “unsecured” loan, meaning you don’t need to put up any collateral to get it, the application and approval process is very straightforward. In most cases, you can access the funds the same day. Approval is based on your credit history, monthly income and debt obligations. Interest rates are based on credit scores.

Advantages:

• Affordable: On average, personal loans have significantly lower interest rates than credit cards, making them a great option for consolidating high-rate debt.
• Stable: Your loan’s rate, term and amount are all fixed, so you can rest easy knowing your payments will stay the same and your rate won’t go up.
• Quick & easy: All it takes is your ID, a copy of your most recent paystubs and a quick credit check to apply. Having paystubs available can help with the application process as they may be used in the underwriting process. Most applications are processed within one day, and funds are ready within hours of signing for the loan.

When it’s right:

Personal loans are excellent for when you have small to medium purchases (up to $40,000) in mind, are attempting to consolidate higher interest debt, or need access to the funds more quickly. Paying for moving expenses, wedding costs or vet care are among the common uses for personal loans. Explore UW Credit Union’s current rates.

Still Need Help Deciding?

When it comes to personal financing, there is no one-size-fits-all.

Head over to our FAQs page if you still have questions.

You can also get the friendly, supportive guidance you need by contacting one of our loan officers. They’re ready to assist you on your financial journey!