How Does Home Equity Financing Compare With Credit Cards?

By Michael Pressman

TD Residential Lending Product Manager

While considering forms of credit and financing options, home equity loans and lines of credit are structured much differently than credit cards. Credit cards are revolving lines of credit and do not have dedicated draw (borrowing) or repayment periods like a home equity line of credit (HELOC). Instead, each month you'll make payments on what you've used, plus interest. On the other hand, a home equity loan provides a single, large lump sum of money that can be used for more expensive projects or purchases. Typically, credit cards carry higher interest rates than home equity lending products as they are a form of unsecured debt – meaning homeownership or another form of collateral is not required.

Home equity loans and lines of credit financing pros and cons

  • Pros

    • Large loans capable of covering most expenses
    • Low, variable or fixed interest rates
    • Variable or fixed interest rates usually lower than most credit cards
    • Payment flexibility depending on which option you choose
  • Cons

    • Requires homeownership
    • Can take upwards of 30 days to receive funds
    • Loans limited to available equity in your property

Credit card financing pros and cons

  • Pros

    • Quick access to funds
    • Does not require homeownership
    • Promotional rate offers and rewards are common
  • Cons

    • Credit limit might not cover all expenses
    • Typically have higher variable interest rates than home equity products

When to choose home equity financing

Since home equity financing and credit cards can be similar, it may be difficult to choose the best option for you. Home equity financing can be a good choice when you've accrued some equity in your home. These loans often have lower interest rates and more flexible repayment options than credit cards. Lower interest rates can be very attractive if you're planning to use the funds to pay down or consolidate other debts. For example, if you use a home equity loan or line of credit to consolidate existing credit card debt at a lower interest rate, you will reduce the total cost of borrowing. Calculate how home equity financing can help you consolidate debt.

When to choose a credit card

Using a credit card over a home equity loan or HELOC may be your best choice for any or all of these reasons:

  • You need to access cash quickly to cover an emergency and are left with an unexpected expense (home equity financing can take upwards to 30 days to secure funding)
  • You do not own a home (home equity financing requires that you borrow against the accrued equity or value of your home)
  • You are able to pay off your balance each month and avoid interest payments

Explore TD financing solutions

  • TD Bank Credit Cards

    Choose the card with the rewards you want, like Cash Back for everyday purchases

  • TD Home Equity Loans

    Tackle projects with a predictable monthly payment

  • TD Home Equity Line of Credit

    Turn your home's equity into spending power—plus get a rate discount with your TD Checking Account

  • Help me choose a loan

    Explore loan options based on your answers to a few easy questions

Loans subject to credit approval. Equal Housing Lender 

This article is based on information available in July 2021. It is for general informational purposes only. It is not intended to provide specific financial, investment, tax, legal, accounting, or other advice and should not be acted or relied upon without the advice of a professional advisor. A professional advisor will recommend action based on your personal circumstances and the most recent information available.