What is a HELOC?
A home equity line of credit (HELOC) is a line of credit that uses the equity in your home as collateral. The equity in your property is determined with a current appraisal to ascertain the value. The equity will be based on the appraised value minus any lien against the property. A HELOC is a revolving line of credit that you are able to draw against for a set period of time. The amount of your credit line will be determined based on equity, credit score and history, and your debt-to-income (DTI) ratio. Since your home is used as collateral, HELOCs have variable rates, while the rates are variable, they are typically much lower than personal loans and credit cards.
What is a Home Equity Loan?
A Home Equity Loan (HEL) is a fixed-rate loan that provides funds to the borrower that is re-paid over a period of time. A Home Equity Loan is an installment loan typically with a fixed rate, fixed term, and fixed payment. It is also a second mortgage, and the collateral is your home. HELs are great if you know the exact dollar amount that you wish to borrow. While they do not offer as much flexibility as a HELOC, they offer stability and are a great way to access the equity in your home. The HEL Is a second lien against your property.