Differences between a HELOC and Home Equity Loan

In case you need to borrow the money, you have a few options to consider. You can either apply for a credit card, take out a personal loan, or look for ways to borrow against the wealth you already have, like the home equity lending at home equity loans Chicago.

If you would like to pay lower borrowing costs, a home equity loan, and home equity line of credit (HELOC) will allow you to get a loan backed by your house. Although, this option is mostly geared to consumers that owe a much less than their houses are worth. Most of the HELOCs and home equity loans allow you to borrow up to 85% or 90% of the value of your home. Since you are using your house as collateral for the loan, there are typically low-interest rates and fair terms like at the Skydan Equity. When it comes to deciding which one to choose, it’s crucial to consider your financial situation. Let’s take a look at the basics of both of them and then at what makes them different.


Home Equity Loan

A Home Equity loan represents a lump sum of money that the borrower applies from the lender. How much you can receive as a borrower depends on the loan-to-value ratio, and similar to the other kinds of loans, the income, and credit history.


Home Equity Line of Credit (HELOC)

A HELOC is a line of the credit which revolves. It’s similar to the credit card, and it can be used for some large or unexpected expenses, debt consolidation, home remodeling, and similar. Same as with credit card, your credit line will be correspondingly replenished each time you repay some or all of the money used from the home equity line of credit.

A home equity loan is a secured loan in which you’re borrowing against the equity that’s been built in your home. When you obtain a home equity line of credit, you are given a draw period – length of time during which your HELOC will stay open. Draw periods are typically ten years. After the draw period, you will enter into the repayment period that can be somewhere from 10 to 20 years.


Differences between a HELOC and Home Equity Loan

As you weigh the differences between a HELOC and home equity loan, you will spot some minor differences between these two products:


Fixed vs. Variable Interest Rates

A home equity loan is charging interest at a fixed rate, while most of the HELOCs charges interest at the variable price. Fixed rates are providing you with predictable payments. These payments allow your loan lender to give you a schedule for stable repayment amounts over the life of your loan.

Variable rates are generally based on the interest rate on a standard index and will, therefore, fluctuate, depending on factors of the United States economy.


Fees and Penalties

Both HELOC and home equity loan will assess the array of closing costs and prepayment penalties can be included if you pay back the loan before the scheduled term. Lenders are supposed to provide you these penalties and fees upfront so that you can evaluate which of the lenders provides the most attractive terms.

Unlike the home equity loans, a HELOC includes annual fees over the life of your repayment period. Also, it includes transaction fees each time when you make a withdrawal from your personal line of credit.



While judging a line of credit vs. fixed loan, you will conclude that the home equity line of credit would be the best for the upcoming expenses that are not set in stone, while the home equity loan would be perfect for the cases when you have a definite amount to pay.

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