Home Equity Loans and Lines of Credit (HELOC)

Home equity loans and lines of credit (HELOCs) are two types of financing options that allow homeowners to borrow against the equity they have in their homes.

A home equity loan is a lump sum of money that is borrowed against the equity in the home. The loan is typically repaid over a fixed period of time, with a fixed interest rate and monthly payments. Home equity loans are often used for large, one-time expenses, such as home renovations, major medical bills, or debt consolidation.

A home equity line of credit (HELOC), on the other hand, is a revolving line of credit that can be used as needed. Similar to a credit card, a HELOC has a credit limit and interest is only charged on the amount borrowed. As the homeowner pays back the borrowed amount, the available credit is replenished. HELOCs are often used for ongoing expenses, such as home improvements or educational expenses.

Both home equity loans and HELOCs require the borrower to have equity in their home, which is the difference between the home’s current market value and the outstanding mortgage balance. The amount of equity that can be borrowed against depends on the lender’s requirements, but typically ranges from 75% to 90% of the home’s value.

It’s important to carefully consider the terms and fees associated with both home equity loans and HELOCs before deciding which option is right for your financial situation. Additionally, borrowers should be aware that if they fail to make payments on their home equity loan or HELOC, they could potentially lose their home to foreclosure.