A Simple Guide to Choosing What’s Right for You
If you’re considering using your home’s value to fund a project or reach a financial goal, you’ve likely heard about home equity lines of credit (HELOCs).
This guide explains the differences between loans and HELOCs, when each may make sense, and what to think about before deciding.
What Home Equity Means — and Why It Matters
Home equity is the difference between your home’s current market value and what you still owe on your mortgage. The equity you have in your home builds as you pay down your mortgage and your home’s value increases. It’s part of your long-term financial investment in your property.
For example, if your home is worth $350,000 and your remaining balance is $250,000, your equity is $100,000. That $100,000 is what lenders consider when determining how much you can borrow through a home equity loan or HELOC.
Quick Tip: Use M&T Bank’s HELOC Rate and Payment Calculator to estimate your available equity before applying.
Watch our HELOC educational video , and explore M&T Bank Loans and Lines of Credit options for details on rates, terms, and benefits.
How a HELOC Works
A Home Equity Line of Credit (HELOC) works more like a credit card backed by your home’s value. You’re given a borrowing limit and can withdraw funds as needed, repay, and borrow again — typically during a 10-year draw period.
HELOCs usually have variable interest rates, which means your payments may change over time.
A HELOC may be a good fit if you:
- Want flexibility for ongoing or unpredictable costs
- Plan multiple home projects over time
- Prefer to borrow only what you need, when you need it
Learn about M&T Bank's Home Equity Line of Credit.
Loan vs. HELOC — Key Differences at a Glance
Feature
Borrowing type
Interest rate
Monthly payment
Repayment schedule
Best for
Typical uses
Loan
One-time lump sum
Fixed
Same each month
Starts immediately
Set expenses with known cost
Remodels, debt payoff, tuition
Home Equity Line of Credit (HELOC)
Ongoing access to funds
Variable
Changes with rate and balance
Draw period, then repayment phase
Flexible, ongoing expenses
Home upgrades, emergencies, cash flow needs
Did you know? Some homeowners use both — a loan for one-time needs and a HELOC for ongoing flexibility.
Pros and Cons to Consider
There are pros and cons of choosing either a loan or a HELOC. The one you choose should work for your unique financial goals and situations.
Loans
Pros:
- Predictable payments and rate stability
- Easier to budget long-term
- Fixed term helps ensure repayment discipline
Cons:
- Interest starts immediately on the full balance
HELOC
Pros:
- Borrow only what you need, when you need it
- Flexible repayment options during the draw period
- Can be reused as you pay it down
Cons:
- Variable rates may rise over time
- Monthly payments can fluctuate
How to Decide Which Option Fits Your Goals
Ask yourself:
- Do I need a set amount now or flexible access over time?
- Am I more comfortable with a fixed rate or a variable rate?
- Will I use the funds for one big project or several ongoing ones?
If you’re looking for stability, taking a loan might be the better fit.
If you prefer flexibility and ongoing access to funds, a HELOC may make more sense.
Not sure which to choose? Visit M&T’s Lending Calculator Library to compare estimated payments and borrowing power.
What to Know Before You Apply
- Most lenders allow you to borrow up to a set percentage of your home’s value, minus what you owe
- You’ll need documentation such as income verification, mortgage statements, and possibly a home appraisal
- Since your home is used as collateral, make sure your repayment plan fits your budget
Frequently Asked Questions
Before deciding how to tap into your home’s value, here are answers to common borrower questions.
How much equity do I need to qualify?
Typically, lenders require at least 15%–20% equity in your home to qualify for a HELOC.
Is a loan or HELOC better for home improvements?
Both can work. A loan is best for a single large project, while a HELOC gives flexibility for multi-phase or ongoing renovations.
How are interest rates determined?
Rates depend on your credit score, loan-to-value ratio, and whether the product has fixed or variable rates.
Can I switch from a HELOC to a fixed-rate loan later?
Some lenders, including M&T Bank, may offer conversion options. Ask about available terms before you apply.
Are there fees or closing costs?
Usually. There may be appraisal fees, closing costs, or annual fees depending on the product. Always review costs upfront.
Final Thoughts
HELOCs are considered second mortgages because they use your home as collateral in addition to your primary mortgage. M&T Bank also offers traditional mortgage options if you’re buying, refinancing, or considering your next property.
A HELOC can be a smart, strategic ways to access the value in your home. Choosing the right option between a HELOC or a loan depends on your goals, comfort with rate changes, and need for flexibility.
Explore M&T Bank's Home Equity borrowing options to find a fit for your next project or financial plan.
You can also contact us – our team of loan experts is here to help you.
Have Questions?
Interested in learning more about a Home Equity Line of Credit or other products? Fill out this form to have a banker contact you.
This content is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.
All loans and lines of credit and all terms referenced are subject to credit approval and other conditions. Other terms, conditions, fees and restrictions may apply.