Fri. Jun 2nd, 2023

heloc versus home equity loan

Home Equity Line of Credit Vs Home Equity Loan

There are many different home equity loans and home equity lines of credit (HELOCs). It’s important to understand the differences between these types of financing options before deciding which one is right for you.

A HELOC gives you access to a variable, low-interest-rate credit line that allows you to spend up to a certain limit. They can be a good option for people who want access to a revolving credit line for variable expenses and emergencies that they can’t predict.

Interest Rates

The interest rates associated with home equity loans and HELOCs vary widely by lender and the type of loan. The most important factor to consider when deciding between the two is your individual financial situation and needs.

Generally speaking, home equity loans offer lower starting interest rates than HELOCs. However, both types of loans can change in interest rate during the life of your loan depending on market conditions and the decisions made by the Federal Reserve.

If you’re planning to make a large home improvement project, you may want to take out a home equity loan. Because the amount you borrow is often based on the value of your home, you’ll pay less in interest than if you took out a line of credit, says Marc Dukes, senior vice president and credit and analytics director, home lending at Huntington Bank.

You can also use your home equity to pay for education expenses, consolidate debt or cover other needs. For example, you might need funds for a major renovation project or for paying off high-interest credit card debt.

With a HELOC, you can withdraw money as needed for up to 20 years. Once this draw period ends, you’re required to start making monthly payments to repay your credit line balance plus interest.

Some HELOCs come with a promotional rate that increases to a variable interest rate after the promotion ends, but they usually cap this at a specific percentage of your credit line. The interest rate can also fluctuate if the market changes, which makes it more important to pay off your HELOC as quickly as possible.

While a HELOC can be a useful tool for homeowners who have accumulated substantial equity, it can be more challenging than a home equity loan to pay off. If you’re unsure about the best way to pay off your loan, consider using a debt consolidation service to help manage your finances.

See also  Small Home Equity Loan

In addition to interest rates, you’ll need to consider the duration of your repayment period and whether or not you can afford to make regular payments on a HELOC. The draw period of a HELOC typically lasts 10 years, but you can usually make interest-only payments during that time.


Many homeowners use their equity for a variety of purposes, from financing a home renovation to consolidating debt. Using home equity as a source of funds is an excellent way to finance such expenses while keeping payments low and interest rates as low as possible.

If you are considering borrowing against your home’s equity, it is important to consider the type of loan best suited for your needs. There are two types of home equity loans: a one-time loan and a line of credit, or HELOC.

A home equity loan is typically taken out as a lump sum of money and must be repaid with equal monthly payments over a set period of time. If you are unable to repay the loan, your lender can foreclose on your property.

The amount of the loan, its interest rate and your credit score will be affected by your income, credit history and the market value of your home. Most lenders prefer to see a borrower have at least 15% to 20% equity in their home.

An HELOC is similar to a credit card in that you are given a line of credit to use as needed, with interest only charged on what you actually borrow. This makes the HELOC a great option for emergencies and if you know how much of the line you will use at any given time.

When you want to borrow more than what you have available, however, you need to begin paying off the remainder of your loan in addition to the interest you’ve accrued. This is called a “repayment period” and can last as long as 20 years.

This repayment period can make your monthly payment go up significantly if you have to pay back more than what you originally borrowed, but it’s usually more affordable than a home equity loan.

As with all types of consumer credit, you should be sure to shop around before deciding on a home equity loan or a heloc. A good mortgage broker can help you find the right financial solution for your needs and keep costs as low as possible.

See also  What You Need to Know Before Applying for an Online Home Equity Loan


Whether you’re trying to make home improvements, pay off high-interest debt, or cover emergencies, it’s possible to tap into the equity in your home. This equity is usually tied to your home’s current market value, and it can be a great resource for financing big expenses or securing peace of mind.

If you’re looking to borrow against your home’s equity, it’s important to decide which type of loan is right for you. A home equity line of credit (HELOC) or a home equity loan can both offer you flexibility, but they work differently.

A HELOC allows you to draw from your home’s equity whenever you need it, with no recurring monthly payments required until the “draw period” ends. During this time, you can withdraw as much of your credit limit as you need, and only interest is charged on the amount you’ve drawn. However, if you don’t use your line of credit for any reason, it must be paid off before the end of the draw period or you will have to start repaying the full amount.

As with a traditional mortgage, you can pay your lender “points” to get a lower rate, but keep in mind that these points will take some time to recoup. They also can add to your total costs and may not be worth it if you plan to sell your home before paying off the loan.

On the other hand, a home equity loan can be a great way to take out a large sum of money upfront and pay it back over a set term with fixed monthly payments. This option is ideal for people who know they’ll need a lump sum of cash in the future, like when they need to pay for college tuition or other long-term expenses.

The biggest factor that will help you determine whether a home equity loan or a HELOC is right for you is your budget and your credit history. Having an excellent credit score can mean the difference between getting approved for a home equity loan or line of credit, and it can also save you money over the life of your loan.


Homeowners often borrow against the equity in their homes for a variety of purposes, including to fund home renovations, pay for a child’s education or consolidate debt. While they can be useful financing tools, both home equity loans and HELOCs come with their share of pitfalls.

See also  How to Find the Best Home Equity Loans

Despite this, they can be helpful financing solutions when you need access to cash, especially when you need it on an as-needed basis. However, before deciding between a heloc and home equity loan, it’s important to understand the differences between these two types of financing so you can choose the right option for your needs.

In contrast to a home equity loan, which usually offers borrowers a lump sum of money upfront at a fixed interest rate, Helocs are revolving loans that give borrowers the ability to draw against their line of credit as they need it. During the draw period, they are required to make regular payments to cover interest, but don’t need to make any principal payment until their draw period has ended.

Helocs are cheaper than credit cards, and can be a good choice if you want to make a one-time large purchase without paying a hefty interest rate. However, they can be risky for lenders because they don’t get their money back until you repay the primary mortgage lender first.

Because of this, borrowers should be prepared to pay higher rates than they might with a personal loan or credit card. Nevertheless, it’s possible to find a competitive interest rate on a Heloc, as long as you can show strong credit and a stable income.

Moreover, Helocs are less likely to affect your credit score than loans that aren’t backed by your property. This is because they tend to be treated more like car loans or mortgages by credit-scoring algorithms.

As a result, if you’ve been late on payments in the past, your credit score may drop more when you borrow against your home with a Heloc than a home equity loan. This is because Helocs are backed by your home, and so if you default on your payments, the lender can take your house.

Jeffrey Augers
Latest posts by Jeffrey Augers (see all)

By Jeffrey Augers

Jeffrey Augers is a highly skilled and experienced financial analyst with over 12 years of experience in the finance industry. He has a proven track record of delivering exceptional financial insights and recommendations to clients, empowering them to make informed decisions and achieve their financial goals. Jeffrey holds a Bachelor's degree in Finance from the University of Michigan, and an MBA from the Wharton School of Business.