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.