Home Equity Loan or HELOC: Which Do You Need?


If you have some equity in your home and it’s time to make some improvements, we’d suggest that you learn the difference between a home equity loan and a home equity line of credit (often referred to as a HELOC). They sound pretty much the same, but they are not. Basically you get cash for your home’s equity that you can use to improve your home and make it all that it needs to be. It’s a great way to afford that new kitchen or those gorgeous new bathrooms. However, what’s the difference? We have the answers that might just help you out right here.


The basic principal of this type of loan is that it’s kind of like a credit card. You pay it every month and then you have that cash available to you again. Let’s say you have a HELOC account with a $20,000 limit. You spend $15,000 and then make a $5,000 payment to the account. Now you have another $10,000 to use again. It’s simple, and it’s very easy to understand. However, you cannot use this cash forever. You can only use it for a period of time before it becomes time to repay it, and that means you are no longer available to spend the cash in this account.

Home Equity Loan

This is a loan that’s a bit more like a mortgage. It’s not as much as your mortgage, of course, but it’s very similar. With home equity loan, you will take out a portion of the equity of your home and then roll it into your mortgage, paying it off over the life of your mortgage loan. You do not get to make payments to it and then use that money again in the future. You pay it, it’s gone. It’s great for someone who wants to ensure that they are able to pay off their loan and also add to their home to increase the value as they sell.

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