Should I choose a HELOC or a home equity loan for home improvements?​

Using a Home Equity Line of Credit (HELOC) or home equity loan for remodeling and improvements around your home is a great use for your home equity. Which option is better for you will depend on which loan works best for your financial situation and the home improvement project you are planning. 

One of the main differences between the two loan options is how you access your funds. A HELOC offers homeowners a line of credit based on the value that they have in their home. Home equity loans offer borrowers a lump-sum amount based on their home equity.  

Both a HELOC and a home equity loan are great options when looking to fund your home improvements. To start accessing the funds from these loans begin with a HELOC or home equity loan application. 

Is a HELOC or home equity loan better for home improvements?

Whether a home equity loan or HELOC is better for home improvements depends on how you need the funds and the repayment schedule that works best for you and your project. 

Home equity loans will give you all your approved funds at the start of your loan and require you to start paying back your loan shortly afterwards. For larger projects with more predictable costs, a home equity loan might be a better option for you. 

HELOCs allow you to access just the funds that you need and not pay interest on the funds you don’t use, as well as putting off principal payments while you access your funds. This makes HELOCs a better option for any project where the costs could change. 

Best financing option by project type

Let’s take a look at the best financing option by project type and way homeowners may benefit from using a HELOC versus home equity loan.

How do the costs of a HELOC and a home equity loan compare?

Even though HELOCs and home equity loans both tap into the equity you have in your home, the costs of both loans vary. Understanding these costs can help you decide which loan option is right for you. 

HELOCs typically come with variable interest rates, meaning that the amount you will pay in interest will not be consistent over the life of your loan. However, you are only charged interest on the amount you draw, instead of the full loan amount.  

Unlike HELOCs, home equity loans come with a fixed interest rate, so your interest payment will stay consistent during the life of your loan. But you will have to pay interest on your total loan amount, since you will receive your full amount upfront. 

Both HELOCs and home equity loans have closing costs that range from 2% to 6% of your loan amount depending on your lender, loan amount and the location of your property. 

How can I decide between a HELOC and a home equity loan for my home improvement project?

When deciding between a HELOC and a home equity loan, on top of considering the project type also look at how each loan works and see which ones fit your financial needs better. 

How can I start the HELOC or home equity loan process?

You can start the HELOC or home equity loan process with an online application through a trusted lender. 

When you start the application process you will connect with a Loan Officer who can answer any questions you may have and will show you what your loan will look like. This will allow you to start planning for your future payments and the home projects your approved funds will help cover. 

When you are ready to begin funding your home projects, start the application for a HELOC or home equity loan.