What is the difference between a Home Equity Loan and a Home Equity Line of Credit?

There are two home equity options available to owners – a home equity loan and home equity line of credit. Both options give homeowners access to needed cash. However, the loans are structured very differently. With a home equity loan, borrowers determine a specific loan amount, and the mortgage lender offers a one-time payout. Since most home equity loans have fixed rates, the payment amount and loan term remain the same throughout the life of the loan.

On the contrary, a home equity line of credit allows homeowners to access cash again and again. Rather than receive a lump sum at once, borrowers gain access to a line of credit. They can withdraw funds on an as-needed basis and payback the money over time. Since the typical draw period is ten years, persons who choose a home equity line of credit always have cash at their disposal. The money can be used for college tuition, home improvement projects, debt consolidation, etc. Because the amount owed on a line of credit varies, monthly payments can rise and fall.