Home equity loan vs HELOC
Equity is the part of your home you own outright: its value minus what you owe. You can borrow against it with a home equity loan, a home equity line of credit (HELOC) or a cash-out refinance.
| Home equity loan | HELOC | |
|---|---|---|
| How you get the money | One lump sum | A credit line you draw from as needed |
| Rate | Usually fixed | Usually variable |
| Payments | Fixed monthly payment | Often interest-only during the draw period, then principal and interest |
| Good for | One known cost, like a renovation | Ongoing or uncertain costs |
How much you may be able to borrow
Lenders look at your combined loan-to-value: everything you owe on the home divided by its value. Limits, credit requirements and fees vary by lender.
Risks to weigh
- Your home is the collateral. Missing payments can put it at risk.
- A variable HELOC payment can rise when rates rise.
- Borrowing against a home that later drops in value can leave you owing more than it is worth.
When a cash-out refinance may fit better
If your current mortgage rate is higher than today's rates, replacing it with a larger loan can make sense. If your current rate is low, a home equity loan or HELOC keeps that low rate in place.
Common questions
Is HELOC interest tax deductible?
Sometimes, depending on how the money is used and current tax rules. Ask a tax professional.
Can I get a HELOC with a low credit score?
Requirements vary by lender. A mortgage professional can tell you which options fit your credit.
Ready to compare options?
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