The Complete Breakdown of Home Equity Loan vs Line of Credit

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Borrowing options such as home equity loans and home equity lines of credit (HELOCs) are beneficial for borrower looking for a loan against appraised value of a house. A home equity loan allows you to borrow money in one large sum and repay it over a defined period of time. A HELOC, on the other hand, allows you to borrow money whenever you need it and up to a pre-determined limit. Furthermore, with HELOCs, you have more freedom in terms of how much and how quickly you pay off the loan.

Home equity loans and home equity line of credit (HELOCs) have lower interest rates than personal loans, credit cards, and other unsecured debt since they use your home as security. This makes both options quite appealing. borrowers, on the other hand, should exercise caution when using either. If can’t pay your credit card debt, you’ll spend thousands in interest, however, if you can’t pay your home equity loan or HELOC, you’ll lose your home.

Home equity loans and home equity lines of credit are two options for accomplishing the same goal. However, they are distinct, and knowing the differences of home equity loan vs line of credit, how they work will help you determine whether one or the other is right for you.

Home equity loans and HELOCs both give borrowers access to the capital they can use for a variety of things, such as debt consolidation and home upgrades. Home equity loans and HELOCs, on the other hand, are not the same thing.

Difference between a home equity loan vs. a HELOC

Home equity loan

  • You get a one-time lump sum payout.
  • You’ll most likely have a set rate.
  • Your payment is dependent on the entire loan amount.
  • Your monthly payment must be made in equal instalments during the loan’s term.
  • Until the sum is paid off, your payment remains the same.
  • When you close, you’ll just have to pay closing fees once.
  • You will not be charged a fee if you pay off and close your loan.


  • You have access to funds whenever you need them.
  • Typically, you’ll have a changeable rate.
  • Your payout is solely based on the length of time you spend on the site.
  • During the draw time, you may be eligible to make interest-only payments.
  • When the draw time finishes, your payment may change.
  • In addition to closing costs, you may incur continuing expenses.
  • You can pay a charge to pay off the line of credit and close it out.

Hard money loan is the perfect example for home equity loan and line of credit investors. It is a type of short-term mortgage in which a borrower receives funds backed by the equity in their home. Typically, private investors issue this form of financing. Individuals that fall outside of traditional and regulatory underwriting requirements might use these bad credit equity loans for main and secondary borrowing.  Borrower’s creditworthiness, judgements, and other issues do not preclude qualification for this sort of low credit House Equity Loan, which is based solely on the equity position of one’s house or investment property.

How do I decide between a home equity loan and a home equity line of credit?

A home equity loan may be preferable if:

  • You know how much your project will cost and need to borrow a lump sum of cash.
  • You’d rather have a set interest rate that won’t alter.
  • Your budget will benefit from a fixed monthly payment.
  • You wish to refinance your high-interest debt at a cheaper rate.

A HELOC may be preferable if:

  • You want to be able to borrow as little or as much money as you want, whenever you want it.
  • You have a number of upcoming expenses, such as college tuition, and you don’t want to take out a loan until you’re ready.
  • It doesn’t bother you if your payment fluctuates.

What are the qualifications for a home equity line of credit (HELOC) or home equity loan?

In order to qualify for a HELOC or a home equity loan, borrowers should have the following qualifications:

  • Significant equity in your home: You’ll probably need at least 20% equity in the home, or an 85% loan-to-value ratio, which means your monthly mortgage and any outstanding home equity loans don’t exceed 80% of the value of your property.
  • Reliable payment history: If you have a history of making on-time installments on other bills, you may be eligible to secure a HELOC or a home equity loan. It is more difficult to qualify if you have a history of late payments.
  • Good credit: While lender varies significantly, you’ll need a credit history in the mid-600s to be eligible, and a score of 700 or higher to secure the best interest rates and conditions. For larger loan amounts, certain lenders want a higher credit score.
  • Sufficient income: Even though most lenders do not disclose their income thresholds, you must show that you can repay the loan.
  • Low debt: A debt-to-income ratio of 43% or less is required by many home equity lenders. It means that your monthly loan payments shouldn’t exceed 43% of your monthly gross income.

If you go via a lender that specializes in high-risk borrowers, you can get approved without satisfying these standards, but expect to pay significantly higher interest rates. If you’re a high-risk borrower, seeking guidance and assistance from a credit counseling firm before taking out a high-interest HELOC or home equity loan could be beneficial.

Is a home equity line of credit or a home equity loan good for you?

A HELOC provides you with the flexibility of a financial safety net that is always available when you need it. Drawing on a home equity line of credit can be a practical answer if your rooftop needs fixing or a tuition fee comes due when you’re short on money. You pick when you want to utilize the cash, and you only pay interest on the money you spend. On the other hand, with a home equity loan, you receive a lump sum of money at loan closing and know exactly how much your monthly costs will be and how much longer the loan will take to repay.

The amount you can borrow in either case is determined by the value of your house and the amount of equity you have. It’s also vital to realize that you’re using your home as collateral, which means it could be at risk if its value lowers or your income is interrupted.

However, if you meet the criteria and your financial condition is steady, a home equity line or credit could be a useful and cost-effective instrument for maximizing the value of your house.


Remember that just because you can borrow against the equity in your home does not mean you should. If you do need to borrow money, there are a number of aspects to consider, including how you want to spend the money, what interest rates might do, your long-term financial plans, and your risk tolerance and rate fluctuation tolerance.

You can apply for a hard money land loan with 14th Street Capital, a competent lender. Get quick approval for no-hassle hard money loans with flexible terms and minimal documentation. One of the top hard money lenders for investors, 14th Street Capital, is your best bet for real estate investment financing.