What's the difference between a Home Equity Loan and a Home Equity Line of Credit (HELOC)?
This can be confusing to most because both Home Equity Loans and Home Equity Lines of Credit share some similarities, such as:
- Both loans are secured by the equity the borrower owns in his/her home.
- Both loans may be referred to as a second mortgage.
- Both loans’ interest may be tax-deductible (consult your tax adviser).
Home Equity Loan
- A fixed amount of money based on your home’s equity over a fixed amount of time.
- A fixed rate of interest, typically.
- Single lump-sum dispersal with no option for the borrower to obtain additional funds.
Home Equity Line of Credit
- A revolving credit limit based on your home’s equity.
- The option to draw funds at any time, and multiple times, over a predefined time period.
- The ability to draw money as he/she needs it, in any increments.
- Funds that are instantly available for use again, as soon as the principal is repaid.
- A variable rate of interest that may fluctuate over the life of the loan.