Understanding the Difference Between Home Equity Line of Credit and Home Equity Loan


 

According to the statistics, the value of homeowner equity in the United States is approximately 18.72 trillion U.S. dollars in 2019.

Many people buy residential property to build equity and long-term wealth creation. Some of them take advantage of that equity to raise more finance.

A home equity line of credit (HELOC) and a home equity loan are two excellent ways to secure financing using your home equity.

Let’s compare and contrast between both options to give you a better idea:

Home equity line of credit

A home equity line of credit, as the name, suggests is a line of credit that allows a borrower to obtain up to a specific amount of their home equity.

HELOC comes with variable interest charges and requires to be repaid gradually over time.The borrower can secure finance during the draw period and only need to pay interest payments.

The draw period, which is usually 10 to 20 years, is followed by a repayment period, where the borrower is liable to pay for principal payments along with interest.

HWhat is a home equity loan

A home equity loan is a financial arrangement that allowsa borrower to obtain financing against the equity in their home.

The borrower is required to pay a fixed monthly payment on a fixed interest rate over the agreed upon period, which ranges typically between five to 30 years. 

The borrower is allowed to use the money received using a home equity loan for any reason.

Some people use the money for home renovation or additions(tax deductions are available) while others use it to pay off high-interest debt like credit card loans, etc.

Understanding the difference between a HELOC and a home equity loan

There are many differences between a HELOC and a home equity loan. For starters, the former comes with fixed monthly payments while the latter have variable interest rates.

Secondly, the repayment terms of both options differ as HELOC has two periods, including draw and repayment, while the home equity loan has a fixed monthly repayment structure.

Moreover, HELOC allows borrowers to draw only funds that they need and replenish the line of credit by making payments. It’s ideal for long-term financing needs.

The home equity loan, on the other hand, requires the borrower to take out a lumpsum payment upfront. Also, they might need a good credit score to qualify for the loan.

Keep in mind that a borrower needs a considerable amount of home equity to quality for both options.

About Tyndall Federal Credit Union

Tyndall Federal Credit Union is a financial institution that provides auto loans, home equity loans, home equity line of credit, and credit card services at flexible terms. 

Based in Panama City, FL, the leading organization also offers a range of financial services, including banking accounts, overdrafts, and more. To find out more details, call 850-769-9999or visit their website.

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