Home Equity Loan vs HELOC: How to Choose the Right Option

Tapping into your home’s equity by taking out a loan is a major financial decision. Two main options exist – home equity loans and home equity lines of credit (HELOCs). This guide examines the key differences to help you decide which lending product best fits your needs.

Home Equity Loan:

– Fixed amount loan taken in one lump sum
– Fixed interest rate and fixed monthly payments
– Typically 10-15 year repayment terms
– Requires good credit
– Closing costs of 1% – 5%


– Revolving line of credit with variable withdrawal limits
– Variable interest rate fluctuates with market rates
– Interest-only payments during the draw period
– Typically 10 year draw period, 20+ year repayment
– Lower closing costs, annual fees apply

Ideal Home Equity Loan Uses:
– Major home renovations
– Consolidating high-interest debt
– Large purchases

Ideal HELOC Uses:
– Accessing funds as needed over time
– Keeping an emergency fund
– Lowering monthly payments

Home Equity Loan vs HELOC:


Q: Which has a faster approval process?
A: HELOCs can be approved within days while home equity loans may require 1-2 weeks.

Q: Which option has lower rates?
A: Fixed home equity loans historically have had lower rates than HELOC variable rates.

Q: What credit score is required?
A: You’ll typically need a 660+ FICO score for either option. Higher scores get better terms.

Q: Which is riskier?
A: HELOCs carry risk of increasing variable rates over time. Home equity loans have fixed predictable payments.

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Evaluate your timeline, budget and financial needs to choose the equity tapping option that best aligns.

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