HELOC vs Home Equity Loan: Which Is Right For You?

heloc vs home equity loan which is best

The home equity lines of credit (HELOC) and home equity loan are both loans that come with various risks. However, getting the right one for your home ownership needs depends on some aspects. So, if you are trying to know not just the difference, but also wanting to know which is right for your house, then this article is just what you need. 

To this effect, it is important to keep reading this article, as it would not only enlighten you, but also help you make the right choice when buying a home or property. Without wasting further time, let us run you through what a HELOC is all about for property ownership. 

What Is A HELOC? 

A home equity line of credit gives freedom, or better still allows the borrower access to a loan at free will. With this revolving credit line, the borrower can not only make payments, but also take money till they get to the present limit. The thing that most individuals aren't aware of with a HELOC, is that there is a variable interest rate. What this means is that over the years, the rate can either decrease or increase. So with that, if the rates are high, then the minimum payment would then go up. With that being said, what then are the advantages of the HELOC? 

Pros of HELOC 

● Financial Flexibility 

The interesting thing about HELOC is that you can have access to borrow funds. In addition, you would also be granted the amount in which you requested for. However, you would then have to pay up the interest on the amount being granted. With this financial flexibility, the borrower can settle expenses over a certain period. 

Low Closing Cost 

For a borrower who has a good credit, you can benefit from low closing cost. Some lenders can decide on scrapping the closing cost as they deem fit. 

● No Restrictions Of Funds 

One critical advantage with HELOC is that the borrower can decide on using the funds without any restrictions. While in some loans, you would have to explain and be mandated to use the funds for specific purposes, HELOC does quite the opposite in this regard. 

● Repayment Freedom 

In taking up some loans, you usually have a stipulated time frame to pay back. However, when it comes to a HELOC, you are free to pay back at a time of your convenience. 

Cons Of HELOC 

● Value of the home may decrease 

● There may be hidden fees, you are not aware of. 

● There is every possibility of you experiencing payment shock, most especially when you have to start making your repayment loan. 

● There is a high chance of having to pay up with a high interest rate. 

Now, having looked at HELOC, the next focal point would be to discuss more about home equity loans. So what are the benefits of a home equity loan? 

What Is A Home Equity Loan? 

A home equity loan or second mortgages as it is sometimes referred to, is a fixed term loan that a borrower receives from a lender. This type of loan is made possible as a result of the borrower's home equity. While some kind of loan like a HELOC which gives you the freedom to make repayment whenever, home equity doesn't permit such. This means that payments are not only fixed, but the interest rates are fixed as well. Home equity loan rates New York may be different than those in other states, so make sure you understand what you are agreeing to before making any final decisions. With that being said, what are some of the advantages of home equity loans? 

Pros Of Home Equity Loan 

● Large Funds 

The good thing to note about home equity loans is that the borrower can get large funds. They stand tremendously well being that no other source provides more funds than they. 

● Flexibility 

Home equity loans aren't rigid as some other kinds of loans are. Instead, with home equity loans, the borrower can decide on using such funds to accomplish a need or want. This means that they can decide on either using it for a vacation or carrying out some renovations. 

● Lower Rates 

When borrowers try to pay back their loan, especially for other kinds of loan, they tend to experience a high interest rate. This can be a challenge for them to meet up with other expenses. However, with a home equity loan, the rates are relatively low since you already have a collateral in place which is your home. 

Cons Of Home Equity Loan 

● Huge Risk Involved 

Collecting a loan can feel like the best line of action to take. However, when the borrower isn't able to meet up, what then becomes the result? With a home equity loan, if the borrower fails to meet up his or her loan payments, the lender can decide on taking the home since it already serves as a collateral. 

● Debt Intake 

While borrowers decide on taking on a loan to settle some urgent or important needs, it is still important to know that you are invariably incurring debt. 

In order to choose between a HELOC and a home equity loan, you would need to understand which is favourable to you. However, to finally help you decide on which, why not look here

While HELOC gives you a bit of freedom to pay back the loan, home equity has a time frame or the repayment time is fixed. Most borrowers would lean towards the HELOC based on it has no restrictions on payment time. But notwithstanding, it would interest you to know that both the HELOC and home equity loans are viewed as convincing types of loan in some borrowers' views. 


While one has some deficiencies in some aspects, the other makes up for it and vice versa. It is important to understand each loan before deciding on which you feel comfortable using. As you know, lenders have to scrutinize the borrower before granting such a home loan. For instance, a home equity loan which basically talks more on a borrower using his or her home as a collateral. The lender can decide if the home is worth the requested funds needed. 

Lastly, having thoroughly explained both the home equity loan and that of the home equity lines of credit (HELOC), it can now be assumed that you best know which is suitable for you.

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