HELOC vs. home equity loan: How to choose the right borrowing option

Your home may hold more borrowing power than you realize — and the equity you’ve built in it (the part of its value you’ve paid off) can help cover a major life expense. Two common ways to borrow against that equity are a home equity line of credit (HELOC) and a home equity loan.

So which one should you choose? Neither option is better every time. The best fit depends on what you need the money for, when you need it and whether your budget can handle a changing payment. Here’s how the two loan types work, when each makes sense and what to weigh before you decide.

With both HELOCs and home equity loans, your house serves as security for the loan (known as collateral), so the lender can take it if you stop making payments.

A HELOC is similar to a credit card, but it draws on the equity you’ve built in your home. “You have a line of credit from which you can choose to use some, all or none of the funds available to you,” says Bruce Maginn, an advisor at Solomon Financial, an independent financial advisory firm in Carmel, Indiana. You also pay interest only…

Original source: https://www.usatoday.com/money/