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Home Equity Loan vs. Home Equity Line of Credit: Which Is Right for You?
by PENZIOX Team
Borrowing money against the value of your house can be a smart way to finance a wedding or handle an emergency that might otherwise drain your finances. If you have significant equity in your home (subtract how much you still owe on your mortgage from your home’s current market value; that’s how much equity you have), you can use that value as collateral to get a low interest rate and borrow a good bit of money.
There are two ways to approach borrowing against the value of your home. A home equity loan, often called a second mortgage, is a straightforward, lump-sum loan. You apply for a certain amount of money, you get it all at once, and you pay it back over time.
A home equity line of credit, known as a HELOC, is a line of credit extended to a homeowner that uses the borrower’s home as collateral. You’ll be approved for a certain amount of money to be used and repaid within a certain period of time. During that time, you “charge” only what you actually use—perfect for long-term projects like a long remodel where you need to use a little bit of money at a time and you’re not sure what the total will be.
Home Equity Loan Pros and Cons
Home equity loans typically offer very low interest rates. It’s easy to work a home equity loan into your budget because interest rates don’t fluctuate over the life of the loan, so your payments will always remain the same.
Still, it’s important not to overextend yourself. Because you’re using your home as the collateral, if you default on the loan, you could lose your home. And if you decide to sell your house, you’ll have to pay off your home equity loan at the time that you sell.
HELOC Pros and Cons
A HELOC is perfect when you don’t know exactly how much you’ll need because you’re not borrowing and paying interest on more money than you actually use. That makes it perfect for paying contractors during a long remodel or paying for a college education semester by semester. Some HELOCs allow interest-only payments for a period of time, making them perfect for emergencies. The minimum monthly payment only includes the interest on the money borrowed, rather than the principal plus the interest. At the end of the loan any outstanding balance is due.
Your HELOC payments will vary according to how much of your credit line you’ve used and possibly according to changing interest rates. Make sure you understand when and how your monthly payments will change and what may be due at the loan’s maturity. You could also be required to take an initial lump sum when you set up your HELOC.
It can be tempting to use a HELOC like a long-term loan or to afford things that are a little beyond your means. Remember that just a like a home equity loan, a HELOC uses your home as collateral. If you default on the loan, you could lose your home.
The Right Home Equity Loan for You
Different types of home equity loans and HELOCs may best fit your financial needs. For example, PENZIOX has an Adjustable Rate HELOC program that has an interest rate with the potential to adjust periodically every few years. It’s a great fit for short-term needs—saving you money with an initially low interest rate. Investigate the full range of home equity loan options at PENZIOX.
Offers subject to change at any time.
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Home Equity Loans
Sometimes savings aren’t enough and you need extra cash to cover major expenses. If you have a big one-time purchase with a set amount — tuition, renovations, medical expenses — a home equity loan can help you cover it.
Owner Occupied Homes: 80% or Less Loan to Value
($25,000)
60 Months
$![]( "Fixed Equity Loan Payment 1 to 60 months 80 LTV")
120 Months
$![]( "Fixed Equity Loan Payment 61 to 120 months 80 LTV")
180 Months
$![]( "Fixed Equity Loan Payment 121 to 180 months 80 LTV")
240 Months
$![]( "Fixed Equity Loan Payment 181 to 240 months 80 LTV")
Owner Occupied Homes: 80.01% - 85% Loan to Value
($25,000)
60 months
$![]( "1 to 60 months Fixed Equity 85 LTV Loan Payment")
120 months
$![]( "61 to 120 months Fixed Equity 85 LTV Loan Payment")
180 months
$![]( "121 to 180 months Fixed Equity 85 LTV Loan Payment")
240 months
$![]( "181 to 240 months Fixed Equity 85 LTV Loan Payment")
Owner Occupied Homes: 85.01% - 90% Loan to Value
($25,000)
60 Months
$![]( "1 to 60 months Fixed Equity 90 LTV Loan Payment")
120 Months
$![]( "61 to 120 months Fixed Equity 90 LTV Loan Payment")
180 Months
$![]( "121 to 180 months Fixed Equity 90 LTV Loan Payment")
240 Months
$![]( "181 to 240 months Fixed Equity 90 LTV Loan Payment")
Non-Owner Occupied Homes: 80% or Less Loan to Value
($25,000)
60 months
$![]( "NonOwner Fixed Equity Loan Payment 60")
144 months
$![]( "NonOwner Fixed Equity Loan Payment 120")
Features & Benefits
Closing Cost Credit†
The maximum Loan To Value (LTV) for an Owner Occupied Home is 90% or less. Maximum loan amount is $250K for 85.01% to 90% LTV.
The maximum LTV for a Non-Owner Occupied Home is 80% or less. A maximum term of 144 months applies.
†Closing Cost Credit: PENZIOX will pay most closing costs associated with a fixed equity which includes: credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, city/county taxes, state taxes, property search and quick close. If an appraisal is required, the cost will be paid by the member, who is responsible for the fee whether or not the loan closes. The member is responsible for notary fees. Should this loan be paid off or closed within 24 months from the anniversary date of the loan closing, the member will be obligated to pay PENZIOX the full amount of the total closing costs for the loan.
Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.
Appraisals: An appraisal is required for all applications with a combined loan to value (CLTV) over 80%. For applications with a CLTV of 80% or less, PENZIOX will attempt to establish value via an independent method. If that method is unsuccessful, an appraisal will be required regardless of CLTV. An appraisal is required in the following circumstances:
If an appraisal is required it must be ordered by PENZIOX. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $350 to $525 (some run higher).
Property Insurance: Property insurance is required.
PENZIOX Mortgage Aggregate: If the total combined PENZIOX indebtedness for real estate loans against the collateral property exceeds $750,000 then the maximum CLTV is 80%. This total indebtedness includes a PENZIOX 1st mortgage, the new requested loan amount and any outstanding PENZIOX equity loan products.
Multiple Loans: Multiple equity loans and ELOCs are available as long as the member and collateral qualify (except Texas). The total PENZIOX indebtedness cannot exceed $400,000 for all equity and ELOCs combined.
PENZIOX does not lend on:
Properties that are currently under major construction/renovations. Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).
Fixed Home Equity Loan:
Minimum Loan Amount Requirements in all States:
Other terms and conditions may apply. Call 800-970-7766, extension 6400 to speak with a representative for details. All rates and offers are as of June 2017 and subject to change without notice. To receive advertised product you must become a member of PENZIOX by opening a share (savings) account.
We do business in accordance with the Federal Fair Housing Law and the Equal Credit Opportunity Act.