Home Equity Line of Credit vs Home Equity Loan FAQs
HELOC is a type of loan that allows you to access the equity in your home. It’s similar to a revolving line of credit, such as a credit card, and you can borrow up to an approved amount and then repay it over time.
A loan usually involves borrowing one lump sum for a set period at a fixed interest rate with repayment terms ranging from 5-30 years. The key difference between the two types of financing is that with HELOCs, borrowers can draw on the amount as needed, up to the approved limit.
HELOCs offer several advantages compared with standard loans, such as lower interest rates and more flexible repayment terms. Additionally, you can use it for almost anything—from home improvements to medical bills or educational expenses.
As with any form of borrowing, there are some risks associated with taking out a HELOC. Your home is used as collateral on the loan, which means that if you default on payments then your lender could potentially repossess it. You should also be aware that the interest rate on HELOCs can fluctuate, so you may end up with a higher payment if rates increase.
A HELOC can be a great way to access money for necessary expenses, but it’s important to weigh the risks before committing to one. Consider your current financial situation and whether you will be able to meet repayment terms comfortably. If you are unsure, then seek out advice from an independent financial advisor.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.