What Is the Difference Between a Home Equity Loan & a Home Equity Line of Credit?

If you need to borrow money, you may be able to get a lower interest rate by using your home as collateral. Home equity loans and home equity lines of credit offer two methods of tapping your home's equity.

Function

A home equity loan disburses the entire amount of the loan when you take out the loan, so you accrue interest on the entire amount from the start of the loan. A home equity line of credit disburses funds as you request them so that instead of accruing interest on the entire line of credit, you only accrue interest on the amount in use.

Interest Rate

Home equity loans can have a fixed interest rate or a variable interest rate. Home equity lines of credit almost exclusively have adjustable interest rates.

Repayment Period

With a home equity loan, make monthly payments that include interest and principal so that you will have the entire amount paid off when the loan ends. With a home equity line of credit, you can make interest-only payments for a specified period. After that, you must either pay off the balance of the loan in a lump sum or refinance the amount you owe into a home equity loan.

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