What is the Difference Between a Home Equity Loan and Home Equity Line of Credit?

Home Equity Loan

A home equity loan is a one-time payout for homeowners who need a single lump sum of cash. This type of loan has a fixed interest rate, so your payments remain the same over the life of the loan. Home equity loan terms are generally between 5 to 30 years. If you sell your home, you must repay the home equity loan in-full at that time. So before you decide to take this route, reevaluate how long you plan to live in your current home.

Home Equity Line of Credit

A home equity line of credit, on the other hand, is more of a revolving door, in that you can borrow money multiple times over the life of the loan (until you’ve reached your spending limit). In many ways, it’s like a credit card. Unlike a home equity loan, a line of credit has an adjustable mortgage rate that can rise or fall, depending on the market. Your monthly payment also fluctuates, and it is based on the amount of money you’ve borrowed as well as the current interest rate. A home equity line of credit is more for homeowners who have ongoing financial needs and must periodically use their line of credit for expenses.