It is usually a good choice for homeowners to raise money by using the equity in the property to secure a loan or a credit line. While both the home equity loan and the home equity line of credit (HELOC) can provide higher borrowing limits with lower interest rates, there are still some differences between the two.

Interest Rates

Most home equity loans charge the interest with a fixed rate, whereas the home equity lines of credit mainly charge the interest at a changeable rate. With a home equity loan, you can predict the repayments and ask the lender to offer a schedule for stable repayment amounts. The variable interest rates on HELOCs, on the other hand, tend to fluctuate as the market changes, thus making planning and budgeting more difficult.

Fees

Although both the home equity loan and the home equity lines of credit charge closing costs, HELOCs, additionally, require annual fees over the life of the repayment period plus the transaction fees whenever you take out the money from the personal line of the credit.

Withdrawal Flexibility

A home equity loan only allows you to withdraw the entire fund in a lump sum, while a home equity line of credit is dispersed separately so that you may take out the funds as you need. Obviously, the latter is more flexible. In addition, HELOCs usually provide a withdrawal window and you will be required only to withdraw money within that period. Once the window expires, you may not have the chance to extend the credit line.

As both the home equity loan and the home equity lines of credit have their own pros and cons, you may compare the differences carefully and choose the best one that suits your unique condition.

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