A HELOC is different from a home equity loan because a HELOC is a line of credit rather than an advancement of an entire sum all at once. A HELOC is essentially a line of credit secured by a mortgage or deed of trust on your home. A HELOC is one of the most flexible financial tools available to a homeowner.
A HELOC is a home equity loan set up as a line of credit for a maximum draw amount, rather than for a fixed dollar amount. This line of credit is set up to a certain amount decided between you and your lender. A home equity line of credit only charges you interest on the money that is drawn out of the account. If you don't use any of the line of credit, then you don't make any monthly payments. It's a good choice for homeowners because it allows them to use the line of credit if they need to, without having to pay interest if they don't. Depending on how much you use the HELOC, you will have a minimum monthly payment requirement (often interest only); beyond the minimum, it is up to you how much to pay and when to pay.
Interest rates and fees for home equity loans are typically relatively low, which makes this a popular way for people to finance home repairs or upgrades, pay the kids' college tuition, or pay off medical expenses. Interest rates are considerably lower than credit cards and interest paid is often tax deductible. Interest paid on a normal credit card debt, on the other hand, is not deductible.
A HELOC is great for homeowners who want a lower initial rate than fixed rate loans, or those who want easy access to funds in case of an emergency. A HELOC is a better choice when you need the option to choose whether or not you need the cash at a given time.
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