Posted on Sep 10, 2020
Both home equity loans and home equity lines of credit (HELOC) are ways to borrow money from the value you’ve accumulated in your house or property. But there are a few differences in how they function and how you might want to use them.
When you get the money is different
The interest and repayment structures are different
Home Equity Loans are considered fixed-rate loans. With fixed-rate loans you can expect the same monthly payment for the entire life of the loan. It won’t change over time. Additionally, because you receive the money upfront, you’ll make payments on the full balance as soon as repayment begins.
Conversely, HELOCs have a variable rate. That means your payments may go up or down over time. Additionally, HELOCs have a longer draw period than traditional loans. You’ll be approved for a maximum amount and can use up to that amount during the draw period. As you make payments on what you’ve used, the credit revolves and you can use it again. After the draw period the remaining interest and principal are due.
Which one is better?
To determine which equity product makes the most sense for you, consider:
Repayment capacity. You’ll want to factor your payments into your decision. If you have a lot of monthly obligations or have an unreliable income, you may prefer the predictability of consistent payments a loan offers.
Remember to ask your bank or lender if there are any special promotions or rates available.