Home Equity Loan vs. HELOC: What’s the difference?

by Kamel LoveJoy, First Alliance Credit Union

Before using your home as collateral to get cash, it’s crucial to understand the difference between a Home Equity Loan (HEL) and a Home Equity Line of Credit (HELOC). These financial tools can provide much-needed funds, but knowing which one suits your needs can make a big impact on your financial future.

What is a Home Equity Loan?

A Home Equity Loan, also known as a home equity installment loan, is a loan that allows you to borrow a fixed amount of money using your home as collateral. You receive the funds in a lump sum and repay the loan with a fixed interest rate over a set term, usually between five and 30 years. The fixed payments make it easier to budget, but you cannot borrow more without refinancing. This type of loan is ideal for those who know exactly how much they need and prefer predictable monthly payments.

 

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