Home equity line of credit vs. home equity loan:
Which is right for you?

Whether you’re looking to remodel the kitchen, pay for college or need emergency cash, home equity lines of credit and home equity loans are popular ways to tap into your home’s equity. Both options let you borrow money against the value of your home, but they work differently and have their own pros and cons.

So which option is right for you? In this blog, we’ll help you decide.

Key Takeaways:

  • Understand the Difference

    HELOCs (Home Equity Lines of Credit) and home equity loans have distinct characteristics. HELOCs provide flexibility to borrow and repay funds during a draw period, while home equity loans offer a lump sum amount.

  • Consider Financial Needs:

    Choosing between a HELOC and a home equity loan depends on your financial situation and the purpose of the funds. If you have short-term or smaller expenses, a HELOC’s flexibility may be advantageous. For larger expenses or projects, a home equity loan’s upfront lump sum and predictable payments could be more suitable.

  • Borrow Responsibly:

    It’s crucial to borrow responsibly and only what you can afford to repay. Both HELOCs and home equity loans are secured by your home, and non-payment can lead to foreclosure. Be mindful of your financial capabilities and borrow wisely.

HELOC vs. HELOAN: What are the key differences?


  • Borrow only what you want, when you need it (up to your credit limit).

  • Variable interest rate is tied to the prime rate, resulting in changing monthly payments.

  • Borrow money and make interest-only payments during the draw period. Make payments on both principal and interest once the draw period ends.

  • Typically has lower upfront costs than a home equity loan.


  • Receive a one-time lump sum.

  • Fixed interest rate, resulting in set monthly payments.

  • Make fixed payments on both principal and interest over the life of the loan.

  • Typically has higher closing costs and origination fees than a HELOC.

What is a home equity line of credit (HELOC)?

A home equity line of credit is a revolving line of credit — think of it like a credit card. With a HELOC, you can borrow and repay funds as many times as you wish during a set period of time known as a “draw period,” typically 5 to 10 years. During this time, you can borrow up to your approved limit and only pay interest on the amount you borrow.
After the draw period ends, you enter the repayment period. During the repayment period, you can no longer borrow and must begin to repay both the principal and interest on your outstanding balance. HELOCs usually have variable interest rates, meaning your monthly payment will fluctuate based on market conditions.

What is a Home Equity Loan?

A home equity loan, sometimes known as a second mortgage, is a one-time lump sum loan. With a home equity loan, you repay the loan with a fixed interest rate over a set period of time, typically 5 to 30 years. Monthly payments for a home equity loan are a fixed amount that includes principal and interest, meaning your payment stays the same over the life of the loan.

Which one is right for you?

The choice between a variable-rate line of credit or a fixed-rate loan depends on your financial situation and how you plan to use the funds. If you need funds for a short-term expense or a series of smaller expenses, a HELOC may be a better option because of its flexibility. If you need money for a large expense, such as a home renovation or college tuition, a home equity loan may be a better option because of the upfront lump sum and predictable monthly payments.

With either option, keep in mind that interest may be tax deductible if you use the funds to “buy, build, or substantially improve” your home and itemize on your tax return. It’s also important to remember that both HELOCs and home equity loans are secured by your home, meaning the lender can foreclose on your home if you can’t make your payments. It’s essential to borrow only what you need and can afford to pay back.

If you’re interested in a home equity loan, you picked the right time. Right now, Fidelity Bank has a special home equity loan offer.

Questions? Contact your local Fidelity Bank banker today to further explore how a HELOC or home equity loan could make sense for you