What is the difference between a Home Equity Line of Credit and a Home Improvement Loan?
A Home Equity Line of Credit (HELOC) and a Home Improvement Loan are two great options for homeowners to consider as resources for completing home improvements, but there are key advantages to each loan.
A Home Improvement Loan is great for when you need money quickly and you know the amount you need to borrow. We can often approve a Home Improvement Loan within 24 hours with proper documentation. Closings often happen the next business day for a total of 48 hours from start to finish. Plus, you are not using your home’s value to secure the loan, so the amount you owe on your home compared to its value isn’t a factor. These are often smaller loans.
If your needs are a bit more complex or you don’t know exactly how much you require, a HELOC gives you more flexibility. If you have equity in your home, we can loan up to 80% of your home’s value. You can use that value as ready cash for a project now, in the future, or any time you wish during the 10-year draw period.
Timing and flexibility are key things to consider
HELOCs offer more flexibility, but can take longer to set up, whereas a Home Improvement Loan is easier to get going. You should also keep in mind that a HELOC has a variable rate compared to a Home Improvement Loan which has a fixed rate. A HELOC will typically require an appraisal of your home, and depending on the type of appraisal, exterior only or full interior, the process may take four to eight weeks to complete. But once you have your HELOC in place you have a very valuable and flexible line of credit.
Need money quickly? Think Home Improvement Loan
A home improvement loan is typically the fastest way to get the money you need, if you know how much you need, and what you need it for. Plus, you’ll get the loan at a fixed interest rate and you’ll know at the time of the loan just how long you’ll need to pay it back and how much per month those payments will be.
Flexibility and freedom? Think HELOC
We can often offer a larger line of credit than you think you’ll need since you have a 10-year period to borrow money and the amount is based on the value of your home. If your planned home project goes over budget and you need more cash to complete it, the money is already available and you don’t need to go through another application process to increase the loan amount. There are no limits on what you use that money for—it’s great as an emergency backstop for unexpected bills, like when your roof starts to leak, or you might use it for a little something extra that wasn’t in your budget. At the end of the draw period, any remaining balance is paid back as an installment loan over a 15-year period. Mascoma Bank may also pay up to $600 in closing costs, so check with your local lender.
A HELOC also offers flexibility in how you pay it down
You can choose to pay interest only over the 10-year draw period or pay interest and principal. Most customers find it beneficial to pay back more than only interest each month, but if short term cash is tight, and you expect to have more flexibility in the future, you can pay accordingly with what works best for your individual financial situation.
Not sure which is best for you? You can ask us questions anytime. Email the Mascoma Bank Consumer Lending team at consumerloans@mascomabank.com.
COMPARING TYPES of HOME LOANS
| Home Equity Line of Credit (HELOC) | Home Improvement Loan | |
|---|---|---|
| Adjustable Interest Rate | ||
| Adjustable Interest Rate | ||
| Fixed Interest Rate | ||
| Fixed Interest Rate | ||
| One lump sum payment | ||
| One lump sum payment | ||
| Draw money from account as you need it | ||
| Draw money from account as you need it | ||
| Interest potentially tax deductible * | ||
| Interest potentially tax deductible * | ||
| Pay interest only on the amount you draw | ||
| Pay interest only on the amount you draw | ||
| Fastest way to get the money you need | ||
| Fastest way to get the money you need | ||
| Secured by your home | ||
| Secured by your home | ||
| Interest-only payments option | ||
| Interest-only payments option | ||
All Home Equity Line of Credit applications will be subject to credit acceptance and property approval. Third Party Fees generally range from $0 to $1,050. Conditions may apply. During the draw period, beginning on the first anniversary of the loan, the annual fee is $59.00. Homeowner’s insurance and flood insurance (if applicable) required. Introductory rate of 6.990% offered for first 9 months. Interest only – variable payments for the next 111 months, calculated at Wall Street Journal Prime minus 0.25%, with a minimum APR of 3.500%, and a maximum APR of 18.000%. Fixed rate repayment for the final 15 years. Annual Percentage Rate (APR) shown is accurate as of 12/19/2024. Rate caps are lifetime caps. Variable rates may be increased after consummation. Consult your tax advisor regarding interest deductibility.
Home Improvement Loan customers must meet standard underwriting guidelines. One time processing fee of $99.00.
*Speak with a licensed tax professional about any potential tax deductions.