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Home Equity Loan vs HELOC Infographic

Couple discussing the differences between home equity loans and home equity lines of credit

What is a home equity loan (HEL)

A home equity loan (HEL) lets you borrow a fixed amount, secured by the equity in your home, and receive your money in one lump sum. The amount you can qualify for is based on your combined loan-to-value (CLTV) ratio, payment term, verifiable income and credit history.

What is a home equity line of credit (HELOC)

A home equtiy line of credit is a kind of revolving credit that allows you to borrow money as you need it with your home as collateral. Lenders approve applicants for a specific amount of credit by taking a percentage of their home's appraised value and subtracting the balance owed on the existing mortgage. They may also consider your income, other debts and credit history.

HEL vs. HELOC: Breaking down the differences

A home equity loan (HEL) lets you borrow a certain amount of money all at once, as a fixed lump sum that you repay over time with a fixed interest rate and fixed monthly payments over the term of the loan. For example, some home equity loans might have repayment terms of 10, 15, or up to 30 years.

A home equity line of credit lets you borrow from your home's equity as needed on a flexible basis, instead of having to commit upfront to a fixed loan amount. A HELOC will typically have a multiyear period known as the “draw period," usually 5 to 10 years, where you are approved and able to borrow from the line of credit.

After this draw period ends, depending on your agreement with your lender, you might have to pay back the entire amount of any outstanding balance all at once, or you might be able to set up repayment terms—or you might be able to renew your HELOC and keep accessing credit as needed.It depends on the loan amount, the interest rate, and other aspects of your financial situation to decide whether a home equity loan or HELOC is right for you.

Infographic explaining the differences between a home equity loan and a home equity line of credit


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