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What is a Home Equity Line of Credit?

By: American Heritage01.07.21

Meet Ashley. Ashley is a 20-something year old homeowner who is interested in a home renovation project, and also has some debt that she may need to consolidate at some point in the future. She’s owned her home for a few years and has built up a nice bit of equity.

Based on Ashley’s situation, she has a few financial options that she can explore. Two options at the top of the list? A home equity loan and a home equity line of credit, also known as HELOC. If you can relate to Ashley, continue reading below to see if one of these options is right for you.


Quick Review: What is a Home Equity Loan?  

As part of this 2-part blog series on home equity, the previous article “What is a Home Equity Loan?” focused on how a home equity loan can be used, loan benefits and general application parameters. In case you missed Part 1, let’s quickly review what exactly is a home equity loan:

A home equity loan gives you a single lump sum of money you can use however you choose. For example, a home equity loan is the perfect to pay off large bills like student loans, consolidate high-interest debts, or finance a big event like a wedding or dream vacation.

Now with that definition under our belts, let’s take a closer look at the benefits of a home equity line of credit.


How is a Home Equity Line of Credit Different than a Home Equity Loan?

In short, a home equity loan provides you with a lump sum of money that you must pay off over a certain amount of time via fixed monthly payments. A home equity line of credit (HELOC) is different in that it operates more similarly to a credit card. A HELOC allows you to get approved for a certain amount, where you can “only borrow what you need... and you can borrow multiple times after you get approved. In the early years, you can make smaller payments, but at some point, you have to start making fully amortizing payments that eliminate the loan” (The Balance).


What are the Benefits of Home Equity Line of Credit?

Perhaps the top benefit of a home equity line of credit is the flexibility it provides, over both the loan balance and interest cost. Plus, it give you easy, ongoing access to cash—kind of like a credit card. Your line comes with a low variable rate that can change over the life of your line.


How Can I Use a Home Equity Line of Credit?

The benefits of a home equity line of credit are similar to those of a home equity loan. Check out the following which are just a few of the benefits that may be of interest to you during this phase of your financial life.

  • Afford a Home Improvement Project: If you have your heart set on a remodeling your kitchen or dream of a new deck, a home equity line of credit can help make those dreams a reality. A home equity line of credit is especially good for a project where you can’t afford to do everything at once, and instead want to tackle one project at a time (versus a project where you know the exact amount, i.e. a kitchen remodel, in which case a home equity loan may make more sense).
  • Make a Big Purchase: Since a home equity line of credit essentially functions as a credit card, this means that you are able to use these funds for a big purchase, i.e. vacation, buy a new car, etc. Alternatively, it may be worth exploring other options for large purchases, i.e. a Vacation Loan. For example, American Heritage Credit Union offers vacation loans for members who may have lower income or low credit scores, and simple need a loan of up to $1,200 for any summer to-dos.
  • Consolidate Debt: Another benefit of a home equity line of credit is that it can be used to consolidate debts to  a lower interest rate, and homeowners will often use home equity to pay off other personal debts such as a car loan or a  credit card. One word of caution if you go down this route — make sure you work to get the debt down after you use your home equity line of credit, so that you can continue to improve your credit score.


Where Can I Get a Home Equity Line of Credit

As with any big life decision, it’s important that you go with a resource that you trust. That’s why, we are committed to best serving our local community and working with our members to navigate financial decisions, like home equity options, when the time comes. For example, we offer our members rates as low as 3.49% APR for a home equity line of credit. Check out this page which provides more details on home equity loans and home equity lines of credit.

If you’re interested in learning more about securing a home equity loan or home equity line of credit, don’t hesitate to  contact our team today!



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