HELOC vs. Home Equity Loan: What’s the Difference?

If you’re a homeowner looking to tap into your home’s equity, you’ve likely come across two popular options: a HELOC (Home Equity Line of Credit) and a Home Equity Loan (often called a HELOAN). While both let you borrow against your home’s value, they work quite differently—and knowing the difference can help you make the right choice for your financial goals.

What Is a HELOC?

A HELOC works like a credit card that’s secured by your home. You're approved for a maximum amount, and you can borrow from it as needed, up to that limit. This is called the draw period, which typically lasts 10 years. During that time, you can borrow, repay, and borrow again. You usually make interest-only payments during the draw period.

After the draw period ends, you enter the repayment period—often 10 to 20 years—where you pay back the principal and interest, and can no longer withdraw funds.

Pros of a HELOC:

• Flexible borrowing—you take what you need, when you need it

• Lower initial payments (interest-only)

• Great for ongoing projects or expenses

Cons of a HELOC:

• Variable interest rates (your rate can go up)

• Payments can increase after the draw period

• Temptation to overspend since it's revolving credit

What Is a Home Equity Loan?

A Home Equity Loan gives you a lump sum of money upfront. It comes with a fixed interest rate and a set repayment schedule—often 5 to 30 years. Your monthly payments never change, making it predictable and easy to budget.

Pros of a Home Equity Loan:

• Fixed rate and predictable monthly payments

• Great for one-time expenses (like debt consolidation or home renovations)

• Can be easier to manage than a revolving credit line

Cons of a Home Equity Loan:

• Less flexibility—you get one lump sum, no re-borrowing

• Higher payments compared to interest-only HELOCs

• You start paying principal and interest immediately

So, Which One’s Right for You?

• Choose a HELOC if you need flexibility, have ongoing expenses, or want to borrow only what you need over time.

• Choose a Home Equity Loan if you want predictable payments, need a one-time lump sum, or prefer a fixed interest rate.

Both options allow you to leverage your home’s value, but your choice depends on how you plan to use the funds and what kind of payment structure fits your lifestyle.

Still not sure which is best for your situation? Let’s talk! I’m happy to walk you through the options and help you decide what works best for your goals.

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