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Are Home Equity Lines of Credit and Home Equity Loans the Same Thing?

No. A Home Equity Loan (HEL) is a lump sum loan that is secured on your home on which you pay capital and interest immediately. A Home Equity Line of Credit (HELOC) is also secured on your home but unlike a HEL, a sum of money is made available to you to withdraw as and when you need it.

Home equity loans are secured against your property and allow you to borrow some or all of the equity in your home. You receive the loan – typically between £3,000 and £100,000 depending on the equity in your home and your income – and then immediately start repaying capital and interest on a monthly basis over a term of between 3 and 25 years.

A Home Equity Line of Credit works differently. Here, a credit facility is agreed for you again based on your income and the equity in your home. However, unlike a home equity loan you do not have to take the money straight away. Instead, you can withdraw the cash in smaller amounts as and when you need it, up to your credit limit.

Both types of borrowing are secured on your home and so tend to be available at lower interest rates than credit cards or personal loans. As both HELs and HELOCs are secured on your property, you should remember that your home is at risk if you don’t keep up your repayments.

A home equity loan is useful if you need a lump sum in order to consolidate existing debts or to pay for a one-off purchase such as a car or holiday. You’ll also find that the interest rates are generally lower on a home equity loan than a HELOC.

However, a home equity line of credit may be more suitable if you are looking to pay expenses on an ongoing basis – such as home improvements which may take several months or years to complete or to pay for a long term university or college course. If you need to make payments over a period of time, a HELOC may be better as you only ever pay interest on the money you have used, not the total balance.

With a home equity loan you can draw the cash, repay it and re-draw it in the future. And, you only ever pay interest on the balance of your borrowing, not on the total credit facility.

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