How Does a Home Equity Line of Credit Differ from a Home Equity Loan?

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    KikoffKikoff
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    KikoffKikoff
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    A Home Equity Line of Credit (HELOC) and a Home Equity Loan both let you borrow money against your house. The main difference is that HELOC loans let you borrow money as needed, while home equity loans are one lump-sum payment right at the start. In either case, you’ll probably get better interest rates, terms, and fees if you have better credit.

    Both loans put your house up as collateral, meaning that if you default on your payments, the lender may be able to take your home.

    HELOC compared to Home Equity Loan

    Neither loan is inherently better, so pick which fits your budget and needs.

    HELOC Essentials

      • Revolving line of credit: Borrow money as needed – like a credit card during a set withdrawal period. Usually 5 – 10 years.
      • Variable interest rate: May go up or down over time.
      • Repayment Period: After the Draw period you enter the repayment period. Pay back your loan plus interest during this time. Usually 20 years. 

    HELOC Cons:

    • Variable interest might go up
    • The repayment phase may come with other fees or tough payback terms

    Who is it for?

    Best for people who want to borrow multiple times over a period of time. Great for longer home renovations, if you’re looking for lower interest rates (usually), or just want extra money as the need arises.

    Home Equity Loan Essentials:

    • Lump sum: Get the entire loan right at the start
    • Fixed interest rate: Your interest rate stays the same from start to finish
    • Monthly payments: You have fixed monthly payments, like a conventional loan

    Home Equity Cons

    • If the value of your house decreases, you’ll owe more money than it’s worth
    • Closing costs and fees may be expensive when finishing the loan

    Who is it for?

    Best for people who want a big sum of money right away, want the consistency of a fixed interest rate, and a longer repayment period.

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