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Home Equity Loan vs. Home Equity Line of Credit

What’s the best home loan option for you?

There’s been a lot of chatter about home equity in recent years. According to Bankrate, much of this has to do with the skyrocketing post-pandemic home prices where many homeowners have been able to enjoy some massive appreciation of their property.

As you can see, your home is more than a place to live—it’s a valuable financial asset. Many people have been tapping into their home’s equity to fund their next big project, consolidate debt, and much more. Deciding between opening a home equity loan or line of credit, however, can be a tricky choice to make.

In this Clearview blog article, we will explore the key differences between a home equity loan vs line of credit so you can make the best financial decision for your needs and goals!

What You Need To Know About Home Equity Loans and a Home Equity Line of Credit

If you’re unfamiliar, a home equity loan is an installment loan that’s secured by the paid value of your home. In other words, homeowners can borrow money and use their home’s equity as collateral. They usually have a fixed interest rate, meaning your monthly payments remain consistent over time and come with a defined repayment timeline, often ranging from 5 to 20 years.

One the other hand, a home equity line of credit (HELOC) the funds are revolving and can be withdrawn when you need to use them. During what is known as the "draw" period, which typically ranges from 5-10 years, you can access available funds. When your draw period is up, you’ll need to repay any withdrawn funds plus interest.

Home Equity Loan vs Line of Credit: Breaking Down the Differences

Still a little unsure between home equity loan or line of credit? We’re breaking down the differences one step further in a more visual way! Take a look at our comparison chart below:

Feature Home Equity Loan Home Equity Line of Credit (HELOC)
Payment structure Lump sum Borrow as needed
Interest rate Fixed Variable
Repayment Principal + interest Interest-only during draw period, then full repayment
Flexibility Less flexible (one-time use) Highly flexible (easily accessible)
Use cases Lump sum needs and/or large expenses like major home renovations, debt consolidation, education costs, or medical expenses Ongoing and/or flexible expenses like home improvement projects happening in stages, covering semester-to-semester tuition, and other unexpected expenses

Ultimately, selecting between a home equity loan or line of credit depends on your financial goals and comfort level with borrowing. Before you get started, it’ll be helpful to understand how much you’ll be able to borrow. Get an estimate with our home equity calculator.

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