Home Equity Loan vs. HELOC: Key Differences Explained
Home equity loans and HELOCs are often mentioned in the same breath, and both let a homeowner borrow against equity without touching the existing first mortgage, but the way funds are disbursed and repaid differs meaningfully between the two. Home equity loan: a lump sum, fixed structure A home equity loan provides a single lump sum at closing, repaid over a fixed term at a fixed interest rate, similar in structure to the original mortgage itself — just a second, smaller loan secured by the same property. The payment amount is predictable and doesn't change over the loan's term. HELOC: a flexible line of credit A HELOC instead provides access to a credit line up to an approved limit, which can be drawn from as needed during a draw period, rather than as a single lump sum. Interest is generally only charged on the amount actually drawn, not the full available limit, and rates are typically variable rather than fixed. Why the fixed vs. variable distinction matters A h...