Difference btwn a Home Equity Loan and a Home Equity Line of Credit (HELOC)

I often get inquiries from clients who want to cash out their equity, but don't often know that there are 2 different ways to do this (other than selling your home!).  Either through a Home Equity Loan or a Home Equity Line of Credit (HELOC).

Here are the differences, and how to consider which is best for your situation:

Home equity loan: best time to go this route is if you plan to use the money all at once or for a one-time occasion like doing home improvements, paying down the mortgage on another home, paying off a car loan, or consolidating debt.  You will always know your monthly payments because of a fixed interest rate, so you will know how to budget.

HELOC:  best option if you don't need all the money at once, but in portions.  This is because it you will only get charged interest on what you borrow, rather than the whole lump sum if you don't need the whole thing right away.  So it's almost like a rainy day fund for when times are slow (commissioned professionals, contractors).  Or maybe your home improvement will be completed in phases over time, only pull it out when you need it so you only get charged interest when you use it.  Important because HELOC's typically have adjustable rates.

Hope that helps!

Pete Castillejos