What is the difference between a home equity loan and a line of credit?

Home equity loan vs. line of credit

If you want to utilize the equity available in your home you have a couple of options: Home equity loans and home equity lines of credit. Most mortgage lenders offer both of these options.

A home equity loan is a loan that offers you one lump sum that is repaid on a monthly basis by the borrower. Home equity loans are often best for those who need a specific amount of money at one time.

A home equity line of credit is a revolving credit line that is based on the amount of equity within the home. Home equity lines of credit are often best for those who seek more flexibility as far as accessing the funds.

Home equity loans are a good idea if you know the exact amount of money you need and have no further need after the loan is paid off. Home equity lines of credit are good for people who either want to have the money available, or who would like the flexibility of managing the disbursement of the funds (such as with multiple contractors on a home improvement project).

Also, those who prefer a stable repayment plan may opt for a home equity loan, as those types of loans often come with fixed interest rates. Home equity lines of credit, on the other hand, often come with variable interest rates, so repayment may not be as stable or predictable.