Home Equity Loans and Lines of Credit

Home Equity

Your home equity is the difference between what you owe on your mortgage (and on any other home loans) and the market value of your home. You build equity as that difference grows —when you repay mortgage principal to decrease the amount you owe, or when your home’s value increases.

You can borrow against that equity when you need cash, using either a home equity loan or a line of credit. Both offer a number of advantages over other types of financing, including:

Interest savings. Home equity loans and lines typically have much lower interest rates than other types of financing, such as credit cards and personal loans.
Tax benefits. Just like your first mortgage, the interest you pay on a home equity loan or line is usually tax-deductible. Consult your tax advisor about the deductibility of interest.

Comparing Home Equity Loans and Credit Lines

	Home Equity Loan	Home Equity Line of Credit
What you get	A single lump-sum payment for the full loan amount	A revolving source of cash that you can draw from as needed Online access to your cash
How you use it	To finance large one-time expenses that have a definite cost	To finance ongoing expenses or miscellaneous purchases, like you would use a credit card
How you pay it back	Repay the full loan amount over a specific time period, at a fixed interest rate	Make payments on the outstanding balance, at a variable interest rate
Benefits	It offers simple repayment terms, and the security of knowing your payments will never increase.	It’s there when you need it, and you only make payments on what you use. You can get your cash online

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