HEL vs HELOC

Home Equity Loans and Home Equity Lines of Credit (HELOCs) are an excellent way to utilize the equity in your home to get something major done.  Perhaps you would like to build an addition onto your house, need to consolidate high rate credit cards and loans or you have to pay your child’s college tuition.  Maybe your daughter is getting married and you want to be able to give her the wedding of her dreams.  Regardless of the purpose, Home Equity Loans and HELOCs sometimes make the most sense when tackling a big project, especially when the interest rates are lower than conventional consumer loans.

Home Equity Loans are an inexpensive option, because they generally have no closing costs.  They also carry the added benefit of tax deductions; something you do not see on other types of loans.

Home Equity Loan (HEL) vs. Home Equity Line of Credit (HELOC)

Before deciding between the two major types of Home Equity products, it is important to know the difference between the two:

Home Equity Loan

HELOC

Borrow one large amount all at once

Money is dispersed as you need it, much like a credit card

Fixed rates with fixed monthly payments; always know what your monthly payment will be

Interest is generally a lower variable rate, but could change at any time based on prime; monthly payments vary based on how much you borrow and the current interest rate

5, 10, 15, 20 and 30 year terms are offered

10 year draw period and then 20 year payback

Better when you have a specific purpose for the loan

Better for when you are not sure how much you will need to borrow for a project