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A Home Equity Loan (second mortgage if you still have a primary mortgage) provides a single lump sum of cash up front with a fixed interest rate and predictable monthly payments. In contrast, a HELOC (Home Equity Line of Credit) functions like a credit card, allowing you to draw from a revolving line of credit as needed, usually with a variable interest rate.

Key Differences

Feature	Home Equity Loan	HELOC
How Funds Are Disbursed	Lump sum upfront	Revolving line of credit (borrow as needed)
Interest Rate	Typically fixed (never changes)	Variable (fluctuates with prime rate)
Payment Structure	Principal and interest payments remain the same for the life of the loan	Interest-only payments during the “draw period,” followed by higher, variable payments during the “repayment period”
Best For	Large, specific one-time expenses (e.g., a single major renovation or debt consolidation)	Ongoing or fluctuating expenses (e.g., phased home renovations, college tuition)

How They Work

Both loans use your home as collateral and generally allow you to borrow up to 80% to 90% of your home’s appraised value, minus what you still owe on your mortgage.

• Home Equity Loan: Once approved, the funds are deposited into your account all at once. You begin paying it back immediately, making consistent fixed payments for terms typically ranging from 5 to 30 years.
• HELOC: A HELOC is divided into two phases: a draw period (usually 10 years), where you can borrow against the limit and may only be required to pay the interest on the amount you actually use, and a repayment period (usually 10–20 years), where you must pay back both principal and interest.

Which One Should You Choose?

Choosing the right option depends entirely on how you plan to use the funds and your comfort level with changing rates:

• Choose a Home Equity Loan if: You know the exact amount of money you need for a project and prefer the stability of a fixed interest rate and a consistent monthly budget.
• Choose a HELOC if: You need financial flexibility, are completing a project in phases, or want a line of credit to use as an emergency fund.