Home equity loan vs home equity line of credit – Differences explained

Home equity loan vs. home equity line of credit – Differences explained

Home equity loan vs. home line of credit,’ are two separate but slightly intertwined topic that leave us confused every once in a while. This is because while they are different, they meet at certain points. One thing we do know for sure is that they are both types of loans. For proper understanding, we need to understand their definitions.

Definition of home equity loan vs. home line of credit

Home equity loan is a quite simply any type of loan where the borrower uses the equity or value of his or her home as collateral to obtaining funds. Also regarded as the second mortgage, the amount of the loan is usually given in relation to the actual value of the home asset. As such, an individual cannot get a home equity loan that is higher than the value of his or her home value. Valuation is usually carried out by an appraiser from the lending institution and the amount set is always clear.

A line of credit, on the other hand, is a loan in which the lender offers the borrower a period of time in which he or she can obtain funds at any time up a certain amount. The lender, usually a financial institution, take into cognizance the credit rating, and all other things necessary before giving the line of credit to the borrower. The collateral, in this case, is not necessarily backed up against the home; any property or asset can be used in this regard – this is unless it is a home equity line of credit. So where does the confusion between home equity loan vs. line of credit come to play? Let’s find out.

Difference between home equity loan vs. home line of credit

Here are some of the differences between home equity loan vs. home line of credit, and their explanations.

  • Form

The first difference between home equity loan vs. home line of credit is the form. There are three different types of home equity loans, and one of them is the home equity line of credit (HELOC). The home equity line of credit is a form of home equity loan that has the features of a line of credit. The borrower can withdraw a series of different amounts up to the cap or limit amount. The line of credit, on the other hand, is a different term altogether. The HELOC just uses its form. You can say the HELOC is a type of home equity loan and also a type of line of credit.

  • Flexibility

One real difference between home equity loan vs. home line of credit is the flexibility of them both. The traditional home equity loan is usually a fixed amount with a fixed interest rate that is refunded at a fixed time. However, the line of credit or home equity line of credit allows you borrow as much money as you want, using more flexible options like credit cards, and it also offers you flexible rates of interest. This is a clear difference between the home equity loan vs. line of credit.

In next story, we will talk about: THE EQUITY CONUNDRUM: THE DIFFERENT MEANINGS OF EQUITY

The Equity Conondrum The different meanings of Equity
The Equity Conondrum The different meanings of Equity

Leave a Reply

Your email address will not be published.

0Shares
0 0 0 0
Follow Us