A New Hampshire or Vermont homeowner who has owned a home for several years could have built up more equity than they know. So if you’re thinking about consolidating or paying down debt, planning to renovate your kitchen, or getting ready for a big expense like a wedding or dream vacation, understanding the differences between a home equity loan vs HELOC is important as you search for the best solution.

A home equity loan and a HELOC (home equity line of credit) enable you to access the equity you have in your home, but they work in different ways. A home equity loan provides a lump sum with predictable payments, whereas a HELOC provides flexible access to your funds over time. Making the best choice depends on what your goals and budget are, as well as how comfortable you are with changing interest rates.

What is a Home Equity Loan?

A home equity loan is a loan that allows you to borrow against the equity in your home and receive the funds in one lump sum. Because the loan is secured from your home, some refer to it as a second mortgage.

Most home equity loans feature:

• Fixed interest rate
• Fixed monthly payment
• Set repayment term (usually 5-15 years)
• A one-time disbursement of funds

Interest is typically calculated based on the fixed rate established when your loan closes. Because the rate will be the same, your monthly payment is predictable for the entire life of the loan. Because of this predictability New Hampshire and Vermont homeowners often choose a home equity loan because it’s attractive for projects with a known cost, such as:

• Replacing a roof
• Home expansions/additions
• Major home renovations
• High-interest debt consolidation
• Significant medical expenses

Here’s an example of how a home equity loan works: Say you borrow $40,000 through a home equity loan at a fixed interest rate of 7.5% with a 10-year repayment term. Your monthly payment would be about $475/month for the life of the loan. Because the rate and payment are fixed, you’ll know exactly what to budget each month from the day the loan closes until it’s paid off.

What is a HELOC?

A home equity line of credit Vermont and New Hampshire homeowners use functions as a revolving line of credit secured by your home’s equity. A Home Equity Line of Credit (HELOC) works differently than a Home Equity Loan, so you wouldn’t receive one lump sum like you would with a Home Equity Loan. It’s almost like a credit card but it’s backed by your home. You’re approved for a credit limit and can borrow only what you need, when you need it.

Key features of a HELOC include:

• Revolving line of credit
• Variable interest rate
• Draw period and repayment period
• Ability to reuse available credit as you repay

During the draw period (often 10 years) you can withdraw funds, repay them, and borrow again. Once the draw period ends, the HELOC enters the repayment period, which commonly lasts 10-20 years. At that point, you can no longer access additional funds and have to repay the outstanding balance.

Many HELOCs allow interest-only payments during the draw period. While this can keep payments low initially, it can also create payment shock later on. If you’ve borrowed heavily and rates have risen, your payment may increase significantly once principal repayment begins.

Here’s an example of how a HELOC works over time: Pretend you’re approved for a $40,000 HELOC with a variable interest rate. At first, you might draw $10,000 to remodel a bathroom, and then later access another $15,000 for a kitchen renovation. Because you’re only paying interest on the amount you’ve borrowed, your payment may start out lower than a comparable home equity loan.

Because most HELOC products in New Hampshire or Vermont have rates tied to the prime rate, your interest rate and your monthly payment can rise or fall over time. HELOCs can be a good solution for:

• Multi-phase renovation projects
• Tuition expenses
• Emergency access to funds
• Ongoing home improvement plans
• Situations where costs are uncertain

Key Differences at a Glance

Feature	Home Equity Loan	HELOC
Funds disbursed	Lump sum	Revolving (as needed)
Interest rate	Fixed	Variable (usually)
Monthly payment	Fixed	Varies by balance
Best used for	One-time expenses	Flexible (ongoing needs)
Rate predictability	High	Lower
Risk if rates rise	No risk (fixed)	Payment can increase

How Much Can Vermont and New Hampshire Homeowners Borrow?

The amount you can borrow is dependent mostly on your home’s value and how much you still owe on your mortgage. Lenders use two measurements to determine the amount you can borrow:

Loan-to-Value (LTV)
LTV compares your mortgage balance to your home’s current value.

At Passumpsic Bank, standard home equity loans and HELOC products allow for LTVs up to 80%. However, we also have an option on the closed-end home equity side that will allow for up to 95% with equity protection coverage if the borrower meets the qualifications and criteria. The cost for this additional protection is covered in the rate which is priced at the standard rate of +1.25%. So, for example, if the standard home equity rate is 6.75% the home equity that requires the equity protection would be priced at 8%.  

Combined Loan-to-Value (CLTV)
CLTV includes both your existing mortgage and your new home equity loan or HELOC.

Most lenders allow a maximum CLTV of approximately 80% to 85%. Example: if your home is worth $500,000 and your lender allows an 85% CLTV, the total amount of debt secured by the home generally cannot exceed $425,000. If your current mortgage balance is $275,000, you may have access to approximately $150,000 in available equity.

This is especially relevant in today’s Northern New England housing market. According to Zillow, the average Vermont home value is approximately $394,000, while the average New Hampshire home value is more than $500,000. Both states have experienced continued home-value appreciation in recent years, helping many homeowners to build substantial equity.

As a result, many homeowners exploring a home equity loan or HELOC in New Hampshire or Vermont could qualify for larger borrowing amounts than they expect.

Which Option is Right for You?

When deciding on home equity loan vs HELOC, the best choice depends on how you plan to use the funds. Choose a home equity loan if:

• You know the exact amount of money you’ll need
• You want monthly payments that are predictable
• You are financing a one-off project
• You want protection from rising interest rates

A fixed-rate home equity loan, meanwhile, can make budgeting easier, especially during times of economic uncertainty.

On the other hand, choose a HELOC if:

• Your expenses will be spread out over time
• It’s difficult to estimate project costs
• You need flexibility
• You prefer to borrow only an amount you need

A HELOC can be particularly useful for phased renovations where costs pop up over time. 

In certain situations, homeowners in Vermont as well as homeowners in New Hampshire will use a home equity loan for a large, predictable expense while maintaining a HELOC for flexibility and future needs. Worth noting is the consideration of taxes. Interest paid on home equity borrowing may be tax-deductible when the funds are used to buy, build, or substantially improve the home securing the loan. Tax rules vary, so homeowners should consult a qualified tax advisor regarding their specific situation.

What Vermont and New Hampshire Homeowners Should Know Before Applying

Before applying for either product, Vermont and New Hampshire homeowners should consider several important factors. First, your home is collateral, so both home equity loans and HELOCs are secured by the equity in your home. If you fail to make payments, it could result in foreclosure of your home.

Be sure to review your credit and debt. Most lenders will evaluate:

• Your credit score
• Your debt-to-income ratio
• Proof of your income
• Available equity in your home

A strong credit score and manageable debt levels can improve your approval odds and help secure better rates. Home equity loans often include closing costs and other fees associated with originating the loan, so it’s important to understand the costs in advance.

HELOCs may have:

• Appraisal fees
• Closing costs
• Annual maintenance fees
• Early closure fees (in some cases)

Consider Variable-Rate Risk

Variable-rate risk is one of the most important differences between a home equity loan and a HELOC. Most HELOCs have variable rates tied to the prime rate. If the Federal Reserve raises rates and the prime rate increases, your HELOC payment also could increase. Home equity loans generally avoid this risk because their rates remain fixed.

Local Market Conditions Matter

Property values in both Vermont and New Hampshire remain strong. Zillow reports that average home values increased approximately 1.6% year-over-year in Vermont and 2.7% year-over-year in New Hampshire, helping many homeowners accumulate additional equity. That means homeowners who have not reviewed their equity position recently may have more borrowing power available than they realize. 

How to Apply for a Home Equity Loan or HELOC at Passumpsic Bank

Passumpsic Bank serves Vermont and New Hampshire communities, with branch locations throughout both states. When you apply for a home equity loan or HELOC at Passumpsic Bank, you’ll be supported from start to finish. Whatever your new project or expected expense might be, our loan specialists can help you determine if a home equity loan or HELOC is right for you. Just share some details with us and we will guide you from there. Whether you’re in St. Johnsbury, Vermont, or Lancaster, New Hampshire, or any of the communities we serve, the application process isn’t long, and you’ll deal directly with local members of our team. Talk to a local loan specialist today. In the meantime, check out some basic information about Passumpsic Bank’s home equity products. 

So when comparing a home equity loan vs. HELOC in Vermont or New Hampshire, neither of them is necessarily better than the other. It all comes down to what your needs are, timing, how you plan to use the funds, and how much payment certainty you’re looking for. If you need a specific amount for a one-time expense and value predictability in your payments, a home equity loan could be the best choice. If you want ongoing access to funds and value flexibility, a HELOC could be the better option. 

For many Vermont and New Hampshire homeowners, a good first step is understanding how much equity you’ve built, and how that equity can help you achieve your financial goals.

By: Allie Beliveau, Residential Lending Advisor, Vermont

This content is for informational purposes only and does not constitute financial advice. Loan products subject to approval.

Frequently Asked Questions

What is the difference between a home equity loan and a HELOC?

A home equity loan provides a lump sum at a fixed interest rate with predictable monthly payments, while a HELOC is a revolving line of credit with a variable rate that lets you borrow and repay as needed over a draw period. The right choice depends on whether you need a set amount for a one-time expense or flexible access to funds over time.

How much equity can I borrow against in Vermont or New Hampshire?

Most lenders allow a combined loan-to-value (CLTV) ratio of up to 80–85% of your home’s appraised value. Passumpsic Bank offers standard home equity products up to 80% LTV, with a higher-LTV option up to 95% for qualifying borrowers. Given average home values of approximately $394,000 in Vermont and over $500,000 in New Hampshire, many homeowners have more borrowing power than they expect.

Is the interest on a home equity loan or HELOC tax-deductible?

Interest may be tax-deductible when the funds are used to buy, build, or substantially improve the home securing the loan. Tax rules vary based on individual circumstances. Homeowners should consult a qualified tax advisor for guidance specific to their situation.

What credit score do I need for a home equity loan or HELOC?

Lenders typically evaluate your credit score, debt-to-income ratio, income documentation, and available home equity. A strong credit score and manageable debt levels improve both approval odds and the interest rate you may qualify for. You can check and monitor your credit score through Passumpsic Bank’s SavvyMoney tool.

What happens to my HELOC payment if interest rates rise?

Most HELOCs carry a variable rate tied to the prime rate, which means your payment can increase if the Federal Reserve raises rates. A home equity loan avoids this risk because its rate is fixed at closing for the life of the loan. If payment predictability is a priority, a fixed-rate home equity loan may be the better fit.

Can I have both a home equity loan and a HELOC at the same time?

In some cases, yes, some homeowners use a home equity loan for a large, defined expense while keeping a HELOC open for ongoing or unexpected needs. Your total borrowing across both products would still be subject to the combined loan-to-value limit on your home.