Frequently Asked Questions (FAQ)
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Home equity loans and home equity lines of credit (HELOCs) share many similarities. Both allow you to secure a loan based on the appraised value of your home, and both loans may also be referred to as a second mortgage. However, home equity loans and HELOCs also have several distinguishing factors.
The following features are unique to a home equity loan:
- With a home equity loan, you can apply for the precise amount you want to borrow. Your loan will be calculated based on your home’s equity.
- You’ll receive a fixed interest rate that doesn’t change throughout the life of your loan.
- After you’re approved for a home equity loan, you’ll receive a single lump-sum distribution without the option to obtain additional funds.
The following features describe a home equity line of credit:
- HELOCs offer a revolving source of funds that you can borrow from as often as needed, as long as you don’t exceed the credit limit.
- You can draw as much or as little money as you need from your HELOC, and you’ll only pay interest on the money you use.
- Similar to a credit card, HELOC funds become instantly available for use again as the money borrowed is repaid.
- HELOCs often include a variable interest rate that may fluctuate over the life of the loan.
