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What Is The Difference Between A Home Equity Loan And A Line Of Credit?

By Bob Redtree

The major difference between a home equity loan and a line of credit is that a home equity loan is a closed-end loan while a line of credit is a revolving credit.

Home equity loan

A home equity loan is much like that of a second mortgage but usually has a lower interest rate. This type of program offers homeowners up to 85% of the equity in their home as a large loan. During this loan, interest accrues and monthly payments are made. A home equity loan is secured by the home and if the loan is repaid as agreed by the borrower, the mortgage will be discharged by the lender. If the loan is not paid as agreed, the home can be foreclosed on by the lender. The amount of the loan depends on credit, income and market value of the home.

Home equity line of credit (HELOC)

A home equity line of credit is a more popular choice than a home equity loan and works differently as a revolving credit line. It is granted in the same way as a home equity loan and requires the same document checks and home appraisal. The home equity line of credit is given as a credit card or checkbook that has a set limit.

Main Differences

The main difference between a home equity loan and a line of credit is that the loan is given as a onetime sum of money and the line of credit is an open account somewhat like a credit card with installments. One other difference is that the loan normally has a fixed rate and stays the same for the entire length of the loan. The interest rate of the line of credit is variable and may increase or decrease through the entire length of repayment.

Related posts:

1. Should I Get A Home Equity Loan Or Line Of Credit?
2. Are Mortgage Rates Different On A Home Equity Loan?
3. What Is A Closed End Home Equity Loan?
4. What Is A Home Equity Loan?
5. Is A Home Equity Loan A Second Mortgage?