Want to freshen up your home with a new look, or need to help sending a kid off to college? Tapping into your home’s equity can be a great way to finance repairs, remodels, large purchases, or college tuition.

If you’re planning to use that accrued equity, but don’t want to refinance, you probably know that there are two common ways to access your equity – a Home Equity Loan (HELOAN) or a Home Equity Line of Credit (HELOC). Both have their advantages but selecting whether to move forward with a HELOAN or a HELOC often comes down to personal choice and your unique situation. So how do you choose between them? Which factors should you consider when deciding how to proceed?

“Before deciding what’s best for you, you really should learn more about each option,” said Colton Cooley, First Vice President, Director of Consumer Lending Sales (NMLS #1190300), with First Merchants Bank. “Everyone has different needs, priorities, or future plans so it’s best to consider your specific circumstances.”

Explore the differences between home equity loans and home equity lines of credit here.

“While both have key differences, they also have a lot of similarities,” Colton said. “Both use the equity in your home as collateral, both use similar factors to determine how much you can borrow – such as credit score and debt-to-income-ratios.”

So, what factors can affect whether a HELOC or HELOAN will best suit your circumstances?

Colton said you should ask yourself the following questions before you make your decision:

• Do I need the full amount of funds right away or some now/some later?
• How quickly will I be able to pay the funds back?
• How concerned am I about having a fixed rate and knowing exactly what my payment will be each month?
• What if rates continue to go up and my HELOC rate increases?
• Do I like the flexibility of having money available if needed? Will I be able to use that available credit appropriately?

“Once you have the answers to these questions, you’ll be better equipped to select the option that is best for you,” Colton explained. “For example, a HELOC is a great way to gain flexibility in the way you borrow and repay money.”

And, a line of credit offers great flexibility and immediate access to funds.

“Often, a HELOC is useful if you’re paying down higher-interest rate loans, need cash for emergencies, or need to finance home-improvement projects that may increase the value of your home,” Colton explained. “You can also use a HELOC to pay off your mortgage, take out a HELOC for a down payment, or buy a car with a home equity line of credit.”

However, if you need a large lump sum of cash with a predictable monthly payment, a HELOAN may be a good choice.

“So, if you have a specific project or expense – for example, credit card or medical debt – that you want to pay off with the same regular monthly payments, then this may be an option that is best suited for you,” Colton said. “You can even use a home equity loan to buy a second house.”

Worried that your rate might go up? While that is always a possibility with a variable-rate line of credit, Colton said, there are other options.

“For example, First Merchants offer HELOCs that have a built-in rate lock feature,” he explained. “ This allows customers to lock in in a portion of – or all of – their balance at a fixed rate at any time within the draw period. It offers peace of mind and flexibility, all in one.”

Need help determining possible monthly payments? Try our HELOAN and HELOC payment calculator. If you’re ready to get started, why not schedule an appointment with one of our attentive loan officers, or visit your welcoming local banking center? You can even apply online for a home equity loan with First Merchants Bank!