What’s the difference between a home equity loan and a line of credit?
Both a home equity loan and a home equity line of credit provide the homeowner with the opportunity to turn the equity built up in his home into cash. Beyond that similarity, the home equity loan and home equity line of credit are vastly different. The home equity loan is a one-time lump sum which is paid off over a set period of time. Equal monthly payments are set according to a fixed interest rate over the life of the home equity loan. Once the funds are obtained from this loan, no further money can be drawn from the loan. On the other hand, the home equity line of credit is more like a credit card since it involves a revolving balance. The line of credit allows a borrower to borrow up to a certain amount over the life of the loan and the borrower can withdraw money as it is needed. As the principal is paid off, the credit can be used again, much like with a credit card. Home equity lines of credit respond to variable interest rates which affect the monthly payment.
