What's the Difference Between a Home Equity Loan and a Home Equity Line of Credit?
If you're a homeowner, you can borrow against the equity in your home to secure a loan or line of credit. Both home equity loans and home equity lines of credit use your home's equity as collateral, but there are some key differences. Here's a look at the key features of each type of loan.
Home Equity Loan
With a home equity loan, you borrow a lump sum of money and make fixed monthly payments. Home equity loans are often used for home improvements, debt consolidation, or other major expenses. Because home equity loans have a fixed interest rate and term, they're a good choice if you need predictable monthly payments.
Home Equity Line of Credit
A home equity line of credit, or HELOC, is a revolving line of credit that you can draw on as needed. HELOCs are often used for home improvements, education expenses, or other major one-time expenses. Because HELOCs have variable interest rates, your monthly payments can fluctuate.
With a cash-out refinance, you replace your existing mortgage with a new loan for more than you owe and take the difference in cash. Cash-out refinances are often used to consolidate debt or make major home improvements. Because cash-out refinances have fixed interest rates, your monthly payments will be predictable.