Home Equity Loan vs Line of Credit

A home equity loan gives you money all at once. A line of credit lets you borrow as you need it. Both use your home as collateral.

How Each Works

Home Equity Loan

Bank gives you $50,000 on day one.

You make fixed payments of ~$450/month for 15 years.

Simple and predictable. You know exactly what you owe and when it will be paid off.

Secured by your home. Fixed interest rate.

Line of Credit (HELOC)

Bank approves a $50,000 credit line.

You draw $10,000 now, $15,000 in three months, nothing for a while, then $5,000 more.

You pay interest only on what you have drawn. After 10 years, full repayment begins.

Secured by your home. Variable interest rate.

Risks Explained Simply

Both products use your home as collateral. If you cannot make payments, the lender can foreclose on your home.

With a line of credit, there is additional risk: the variable rate means payments can increase, and the transition from interest-only to full repayment can significantly increase your monthly payment.

When to Choose Each

Kitchen renovation (known cost)

You know the exact amount. Fixed payments make budgeting easy.

Home Equity Loan

Ongoing home improvements

Draw funds as each phase starts. Pay interest only on what you use.

Line of Credit (HELOC)

Debt consolidation

One lump sum pays off all debts. Fixed rate locks in savings.

Home Equity Loan

Emergency reserve

Open the line, draw only if needed. No cost until you borrow.

Line of Credit (HELOC)

College tuition over 4 years

Draw each semester. Avoid borrowing the full amount upfront.

Line of Credit (HELOC)

Questions to Ask Your Lender

  • What is the APR?
  • Is the rate fixed or variable?
  • What are the closing costs?
  • Is there a draw period? How long?
  • What happens when the draw period ends?
  • Can I convert from variable to fixed rate?
  • Is there a prepayment penalty?
  • What are the monthly payments during draw period?
  • What are the monthly payments during repayment period?

Qualification Requirements

Both products have similar requirements:

Home Equity15-20% minimum
Credit Score680+ recommended
Debt-to-IncomeUnder 43%
IncomeStable, documented

Frequently Asked Questions

What is a home equity line of credit?
A HELOC is a revolving credit line secured by your home. You can borrow up to your approved limit, repay, and borrow again during the draw period. Interest rates are variable.
Is a HELOC the same as a line of credit?
HELOC specifically means a home equity line of credit, secured by your home. Personal lines of credit are unsecured and have higher rates.
How long does it take to get approved?
Typically 2-6 weeks, including appraisal and underwriting.
Can I lose my home?
Yes. Both products use your home as collateral. Failure to make payments can result in foreclosure.
What documents do I need?
Proof of income (pay stubs, tax returns), homeowners insurance, property appraisal, and identification.