What is the difference between a home equity line of credit and home equity loan?
A home equity line of credit (HELOC) differs from a conventional home equity loan in that you are not advanced the entire sum up front, but you may use the line of credit to borrow sums that total no more than the maximum line of credit. At closing you are assigned a specified credit limit that you can borrow up to. During a “draw period” HELOC funds can be borrowed and you pay back only what you use plus interest. You may borrow the funds again once funds become available on your line of credit. Another important difference from a conventional loan is the interest rate on a HELOC is variable based on an index such as prime rate. This means that the interest rate can change over time.
