Which Loan is Right for You – A Home Equity Loan or a Home Equity Line of Credit (HELOC)?

Colorado home values are at an all-time high. According to the Colorado Association of Realtors, the median price of a single-family home in Colorado surpassed $500,000 for the first time. This means that many homeowners have more equity in their homes available to them than ever before.

For homeowners wanting to access their equity for things like consolidating and paying off debt, financing home repairs or improvements, or paying secondary education costs, the question is often which loan is better – a home equity loan or a home equity line of credit (HELOC).

“We work with Credit Union of Colorado members to help determine the most beneficial loan for each individual’s situation,” explains Joseph Jonas, Fort Collins branch manager for Credit Union of Colorado. “While both types of loans use a homeowner’s home as collateral, each has its unique benefits and potential drawbacks.”

A home equity loan is often used by borrowers who have a specific purpose in mind for the funds and want to receive them in one lump sum payment. This type of loan comes with a set repayment term, a low, fixed interest rate, and a monthly repayment amount that does not change throughout the life of the loan. Home equity loans may be beneficial for borrows who are ready to use the funds right away, prefer predictable monthly payments, and are prepared to pay loan closing fees and other costs associated with the loan.

HELOC’s are often used by borrowers who want to establish a line of credit that they can use for several years based on their changing financial needs. This type of loan comes with a single-digit variable interest rate. Interest accrues on the borrowed amount only, not the entire credit line as opposed to a home equity loan. HELOCs may be a better choice for borrowers who want to use the funds over a period of time and access equity on an ongoing basis or who don’t want to pay the high-interest rates on credit cards and want a higher credit limit than those available with credit cards but want to maintain the flexibility of accessing cash when needed.

“HELOC’s provide increased financial freedom and flexibility for many members,” says Jonas. “Credit Union of Colorado offers a variety of ways for members who qualify to access their HELOC funds including through check, online account transfers, in-person withdrawals, and a VISA credit card.”

For those interested in learning more about their credit options, including a HELOC, call 800-444-4816 or apply at cuofco.org.

Founded in 1934, Credit Union of Colorado is one of the largest credit unions in the state and is deeply connected to the communities where its members live and work. The credit union’s “here to help” culture is demonstrated by its strong support of local communities through financial donations, promotional sponsorships, and employee volunteerism.

With more than 85 years of experience, Credit Union of Colorado is a stable, member-owned financial institution with more than $2 billion in assets serving more than 140,000 members. The Credit Union of Colorado Foundation supports education and emergency human services programs through college scholarships and grants to nonprofit organizations.