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Is a home equity loan or HELOC the better way to borrow $100,000?

Home equity loans and HELOCs are both strong options for borrowing $100,000 against your equity.  Getty Images

In the first quarter of 2024, the average home equity withdrawl in the United States was $100,000, according to the June ICE Mortgage Monitor report. So, if you're considering tapping into $100,000 worth of your equity, you're not alone. And, you have multiple options to access it. If you want to maintaining your current mortgage ratehome equity loans and home equity lines of credit (HELOC) are viable ways to do so. 

Home equity loans work like mortgages. They offer lump-sum financing and fixed interest and payments. On the other hand, a HELOC is a credit line that gives you flexible access to your equity. And, in exchange for that flexibility, you'll typically need to agree to variable interest and payments. 

But, which of these two options is the best way to tap into $100,000 worth of your equity right now? That's what we will break down below.

Find out how affordable it can be to borrow $100,000 against your home equity now

Is a home equity loan or HELOC the better way to borrow $100,000?

If you're interested in borrowing $100,000 against your equity and you're torn between a home equity loan and a HELOC, it's important to consider your needs and expectations. Here's when each option may be better for you: 

When a home equity loan is the better way to borrow $100,000

A home equity loan may be the better way to borrow $100,000 if you know you won't need to access equity in the future and you're looking for a fixed, predictable payment. "A home equity loan is a lump sum loan that you receive all at once," explains Matthew Teifke, founder of the Texas-specific real estate acquisition fund, TR3. And, "because the interest rate and payments are fixed, you have a predictable payment schedule."

According to Teifke, home equity loans are "ideal for one-time expenses such as home improvements, debt consolidation, or major purchases." 

You should also think about how long you'll take to pay the money back when you choose between a home equity loan and HELOC to access $100,000 of your equity. "In my opinion, timeframe is important when deciding between a HELOC or a home equity loan," explains Denise Supplee, co-founder of SparkRental, an investing educational platform. "Home equity loans are probably better, at least currently, for longer terms and larger amounts since the interest rates tend to be fixed."

Take advantage of the benefits of a home equity loan today

When a HELOC is the better way to borrow $100,000

"A HELOC works like a credit card," says Teifke. "You have a credit limit and can borrow as much as you need up to that limit, repay it, and borrow it again." That is, "during the draw period (usually 5 to 10 years)."

It's worth noting that a HELOC "typically has a variable interest rate, which can change over time," says Teifke. But, the flexibility of these equity borrowing options make them "ideal for ongoing expenses or projects where you need access to funds over a period of time," he says.

"The HELOC may be good for short term or temporary loans as they are easier to secure," says Supplee. But keep in mind that "the HELOC is variable and current interest rates are nowhere near stable." So, if you plan to pay back the money over the long-term, you may want to opt for a home equity loan. But, if you expect to pay it back soon, a HELOC may be the way to go. "For instance, perhaps you are waiting for funds and an unexpected expense such as a home repair comes along. It is easy to tap into a HELOC and then pay it off completely as soon as your funds come through."

Take advantage of the flexibility a HELOC has to offer today

The bottom line

Home equity loans and HELOCs are both effective ways to tap into your equity. The better one for you depends on your needs. If you're looking for long-term financing and want predictable payments, a home equity loan may be the better way to borrow $100,000. If you're looking for short-term financing and need flexible access to your equity, a HELOC may be your better option. Chat with a home equity expert now to learn more about ways to tap into your equity

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