It is better to get a home equity loan if you know exactly how much money you need, whereas a home equity line of credit, or HELOC, is better if you will have a period of ongoing costs with no definite amount, such as during a home renovation. The differences between a home equity loan and a home equity line of credit, or HELOC, are the same as the differences between a loan and a credit card; a loan is a lump sum, and an LOC is a revolving credit line. Both charge interest. Difference Between Home Equity Loan and Home Equity Line of Credit
Is It Better to Get a Home Equity Loan or Line of Credit? FAQs
A home equity loan is a lump sum of money that can be used for anything and must be paid back in installments with interest over the loan's term, while a line of credit allows you to borrow as much as you need up to your approved limit and pay it back at any time.
The main advantage of getting a home equity loan is that it allows borrowers to access funds quickly and easily, with relatively low-interest rates compared to other types of financing options. Additionally, the funds can be used for virtually any purpose, such as debt consolidation or home improvement projects.
The main advantage of getting a line of credit is that you can access funds as needed, up to your approved limit, without having to reapply for more money over time. Additionally, lines of credit typically offer lower interest rates than other forms of financing.
The amount you can borrow with a home equity loan or line of credit will depend on the value of your home and your income profile; however, most lenders generally allow borrowers to take out up to 80-90% of the appraised value of their property.
A fixed-rate home equity loan or line of credit will have an interest rate that remains the same for the duration of the loan, while a variable-rate loan will have an interest rate that changes based on market conditions. Additionally, some lenders may offer special introductory rates with variable-rate loans.
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.
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