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HELOCs (Home Equity Line of Credit) and Home Equity Loans are similar since they both allow you to borrow using the equity in your home, but there are a few noteworthy differences to consider when deciding which option is the best fit for your needs.
Access to Funds
A HELOC provides the flexibility to borrow only what you need when you need it, while a home equity loan is a lump-sum disbursement. Since you get all the funds at once, a home equity loan is a good option for large, one-time expenses. If your needs are ongoing, a HELOC may be a better way to go.
Fixed or Variable Rate
HELOCs and home equity loans both usually have a lower interest rate compared to credit cards and other loan types. The difference is that a HELOC usually comes with a variable interest rate, while most home equity loans have a fixed rate. With a variable rate, your monthly payment could go up or down if rates fluctuate. A fixed rate means your rate and monthly payments won’t change during the term of the loan.
No matter what you choose, using the equity in your home can be a good way to finance home improvements or other major expenses. Consult your banker or use a debt consolidation calculator to discover how much you can save and to ensure your new payments fit comfortably into your budget.