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Home Equity Loan vs. Home Equity Line of Credit: Which is Better?

HELOC or home equity loans are identical money-borrowing methods against the equity in your home. A home equity line of credit allows you to tap into equity up to a specific limit and have a variable interest rate. On the other hand, a home equity loan provides you an upfront lump sum with a fixed interest rate. Both let you borrow approximately 85 to 90% of your home’s value, deducting your overdue mortgage balance. You can utilize a home loan calculator to find out. Which of these products is appropriate for you is based on your circumstances, your intended usage of funds, income, repayment ability, etc., because these factors will ascertain the home loan rates and the terms available with the loan type you opt for.

Home Equity Loan vs. HELOC

Selecting between a home equity line of credit and a home equity loan is based on your needs and requirements as a borrower. For instance, you want a structured loan that helps you know the exact monthly payment amount and when to repay the loan. In that case,  a home equity loan is an excellent choice. Suppose you prefer a more adjustable financing option, or if you are still determining the funding you will require and how you will utilize the money. In that case, a home equity line of credit offers more flexibility to homeowners than a home equity loan. No matter which type of home equity loan you choose, use a home loan calculator to check whether you can repay it on time.

Home Equity Loan vs. HELOC Rates

Apart from loan disbursements and repayment schedules, home loan rates are another massive thing for you to consider when selecting between a HELOC or a home equity loan. The home loan rates on equity loans are fixed, varying from 3.5% to 5.5%. On the other hand, home equity lines of credit have variable rates beginning from 5.25%, although these loan types might be converted into fixed-rate loans during the repayment tenure.

Key Differences Between Home Equity Loan vs. Home Equity Line of Credit

Before deciding which loan to apply for between the two, you should know how much you require and how you will utilise it. Consider the home loan rates, charges linked with it, monthly payments, tax benefits, etc., when you weigh down your options. Additionally, the usage of a home loan calculator will be beneficial to plan your repayment. The differences between home equity loans and a HELOC are as follows:-

  • HELOCs can be a valuable tool for home improvement because they give you the flexibility to borrow per your needs. Suppose you need more than what you initially borrowed. In that case, your credit line can fetch you the additional amount- assuming there is still availability to get an additional amount without reapplying for another home loan.
  • A home equity loan is a great choice if you know the exact amount you should borrow and how you will spend the borrowed amount. When your application for a home equity loan is approved, you’re assured a specific amount, which you get in full when your lender disburses the loan amount.  Such loans can assist you with bid expenditures such as consolidating debt, paying for your children’s college fund, renovating your existing home, purchasing a new home, etc. 
  • A home equity line of credit is a good choice if you are still ascertaining the amount you need and when you require the amount. Such home loan types provide you ongoing access to cash for a specific tenure- sometimes up to ten years. A borrower can borrow against their line, repay it in full or part, and borrow that money again in the future until the borrower is still in the draw period of the home equity line of credit.
  • A home equity loan is ideal if you need an enormous sum to cover an emergency or education and prefer a fixed monthly payment plan after borrowing the required money. On the other hand, a home equity line of credit is perfect if you borrow cash on a revolving basis. A HELOC is perfect for DIYers or investors in the real estate sector who flip houses because you will have more access to money when you require it but won’t have to pay for the loan until you utilise the required borrowed amount.


Home equity loans and HELOC let you borrow money against your home equity. Consider your funds’ purpose, how much you require and whether or not you wish to borrow more in the future. When you decide on it, your credit is in proper shape, and you can shop around and research to get the best home loan rates in addition to using a home loan calculator. As mortgage payments increase, homeowners try to keep the interest rates on home loans low but still access the money associated with their residential property. You can select a HELOC or home equity loan; it is completely your call. You can consult your lender or seek professional financial assistance from an expert to help you choose one.


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