Home Equity Line of Credit vs. Home Equity Loan

Home Equity Loan vs. HELOC: The Basics

A home equity line of credit (HELOC) is a continuous, revolving credit line, while on the other hand, a home equity loan is a lump sum of money that is paid off with fixed payments. 

The big question is, which is right for you? Let's weigh the pros and cons of each so you can decide which one makes the most sense for you. 

Home Equity Loan: Pros & Cons

Pros: 

• A Home Equity loan has a fixed rate and fixed payment and term, so you know exactly what to budget for each month and when you’ll pay it off.
• Great for people who already know the amount they need to refinance or pay a big project bill. 

Con: 

• You only get the money you asked for when you applied for the loan so you would need to reapply to borrow more.

Learn More About Coastal's Home Equity Loan Options

HELOC: Pros & Cons 

Pros: 

• Pay interest compounded only on the amount you draw, not the total equity available in your credit line.
• Offers the flexibility to borrow as much or as little as you need meaning that the amount you owe may vary month-to-month depending on if you borrowed more or less.
• Great for people who know they need to borrow but aren't sure yet how much yet.

Con:

• If interest rates rise, your minimum monthly payment requirement will not change but you will pay more interest and less towards your principal balance.
• It may be easier to overspend, tapping out the equity in your home ending up with a large principal and interest payments during the repayment period.

Learn More About Coastal's HELOC Options

Which Is Right For You? 

Before you decide on which one makes the most sense for you, consider how much money you really need. Or, ask yourself what is the purpose of the loan? For instance, a home equity loan is good if you prefer to borrow and payoff within a fixed amount time and at a fixed rate or to have a lower payment than a HELOC depending on your loan term. In contrast, a HELOC is a good choice if you aren’t 100% sure how much you’ll need to borrow or when you'll need the money.