Home Equity Loan or a Home Equity Line of Credit?

Are you considering using the equity in your home to finance a project, make a purchase, or other expenses but feeling overwhelmed by all of the information out there? If so, you'll want to learn about two popular options: a Home Equity Loan and a Home Equity Line of Credit (HELOC). Think they sound alike? That's understandable. They are similar products that use the equity in your home as collateral. However, understanding their differences is important because each has distinct features and advantages. This blog post will explore what sets these two products apart so you can make an informed decision about which one best fits your financial needs.

What Is a Home Equity Loan?

A Home Equity Loan is a lump-sum loan that uses the equity in your home as collateral. Homeowners obtain these loans to cover large expenses such as home improvements, repairs, medical bills, college tuition, and more. Home Equity Loans have fixed interest rates and fixed repayment schedules. This makes them attractive options for those who need predictable monthly payments over the life of the loan.

Qualifying for a Home Equity Loan

Getting a home equity loan is an excellent way to leverage the value of your mortgage to get access to additional financing. To be approved for a home equity loan, you will need to meet certain qualifications and provide proof of your mortgage and home equity status. Depending on the amount of debt you currently have and the size of your mortgage, the lender will determine whether they can offer you a loan against your estate.

It’s important to be aware that if you accept this type of loan, you are taking a risk as the lender is essentially buying into part of your mortgage in case there’s insufficient collateral. However, with careful planning and understanding, a home equity loan can provide a useful bridge in times when additional funds are needed.

What Is a Home Equity Line of Credit?

HELOCs, however, are lines of credit that allow homeowners to borrow up to a certain limit over time using their home equity as collateral. Much like a credit card, HELOCs offer flexibility when it comes to how much you can borrow and when you pay it back. You only make payments on what you use. Homeowners often use a HELOC to pay for renovation projects, fund college tuition, and cover other expenses. The interest rate on a Home Equity Line of Credit is usually variable and tied to the prime rate.

Qualifying for a Home Equity Line of Credit

Qualifying for your HELOC will take time, as you'll need to provide financial documents such as recent tax returns and proof of employment. Before approving your loan, your lender will review these documents and have other conditions, such as minimum mortgage payments, a good credit score, and income verification. Once approved, you can draw funds anytime up to the HELOCs available credit limit without having to go further through the mortgage process. A HELOC can be a great solution if you are looking to gain extra financing but won't sacrifice any more of your property's equity.


No matter which product you choose, keep in mind that both Home Equity Loans and Home Equity Lines of Credit are secured against your home, meaning if you fail to make payments on the loan or line of credit, the lender can foreclose on your house. Therefore, it’s important to consider all costs associated with each product before making any decisions about borrowing. Also, be sure to find out what type of mortgage (if any) you have and research how refinancing may impact your existing terms.

By familiarizing yourself with Home Equity Loans and Home Equity Lines of Credit, you’ll be able to make an informed decision about which product best fits your financial needs.


MortgageWorks offers financing for new home purchases, refinance, home equity, investment property, construction, and a wide variety of loan program options to fit your every need.

Servicing the state of California and the entire Coachella Valley, including Palm Springs, Cathedral City, Rancho Mirage, Indian Wells, Palm Desert, Desert Hot Springs, La Quinta, Indio and Coachella. Call Art today @ (760) 883-5700

* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.