{"id":6471,"date":"2025-08-21T11:02:15","date_gmt":"2025-08-21T16:02:15","guid":{"rendered":"https:\/\/stpaulfcu.org\/?post_type=education&#038;p=6471"},"modified":"2025-08-21T11:02:15","modified_gmt":"2025-08-21T16:02:15","slug":"heloc-home-equity-loan-difference","status":"publish","type":"education","link":"https:\/\/stpaulfcu.org\/education\/heloc-home-equity-loan-difference\/","title":{"rendered":"The Difference Between a HELOC and a Home Equity Loan"},"content":{"rendered":"\n<p>If you\u2019re looking to tap into your home\u2019s equity, you have two great choices in a Home Equity Line of Credit (HELOC) and a Home Equity Loan (HEL). Let\u2019s take a look at these two products, the key features of each choice and factors to consider before making a decision on which to choose.\u00a0<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-how-are-helocs-and-home-equity-loans-used\"><strong>How Are HELOCs and Home Equity Loans Used?<\/strong><\/h2>\n\n\n\n<p>Although they are structured differently, HELOCs and home equity loans are generally used for similar purposes. Here are some of the most common uses for these home value-backed loans:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Home Renovations.<\/strong>\u00a0Many homeowners use these funds to make improvements that will increase the home\u2019s value.<\/li>\n\n\n\n<li><strong>Debt Consolidation.<\/strong>\u00a0Homeowners carrying large amounts of high-interest debt may choose to consolidate those debts into a single lower-interest line of credit or loan.\u00a0<\/li>\n\n\n\n<li><strong>Emergency Expenses.\u00a0<\/strong>Both products provide access to funds in a pinch, whether for medical emergencies or high-cost unexpected repairs.<\/li>\n\n\n\n<li><strong>Large Purchases.<\/strong>\u00a0From buying a new vehicle to funding a significant family event, these loans offer an alternative to traditional personal loans.<\/li>\n\n\n\n<li><strong>Business Launch or Growth.\u00a0<\/strong>Many entrepreneurs will use these funds to launch a new business or grow an existing corporation.\u00a0<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<p>It\u2019s important to note that there are no restrictions on how you use your HELOC or home equity loan. However, it\u2019s best to use discretion when choosing to use your home as collateral on a loan product because it means risking the loss of your home.\u00a0<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-is-a-home-equity-line-of-credit-heloc\"><strong>What Is a Home Equity Line of Credit (HELOC)?<\/strong><\/h2>\n\n\n\n<p>A HELOC features a revolving line of credit that the homeowner can draw from as needed. Similar to a credit card, the borrower can use funds up to a predetermined limit and repay them over time, only paying interest on the borrowed amount until the end of the draw period. Following the draw period, required repayment of principal (in addition to interest) commences.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-key-features-of-helocs\"><strong>Key Features of HELOCs:<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Revolving credit.\u00a0<\/strong>Homeowners have access to a line of credit that can be drawn upon repeatedly during the \u201cdraw period,\u201d which tends to last five to 10 years.\u00a0<\/li>\n\n\n\n<li><strong>Variable interest rate.\u00a0<\/strong>HELOCs often have variable rates, which means the interest rate can change based on market conditions. Consequently, monthly payments can fluctuate throughout the HELOC term.\u00a0<\/li>\n\n\n\n<li><strong>Flexible repayment.<\/strong>\u00a0Borrowers have the flexibility to pay off the balance and then re-borrow funds during the draw period.<\/li>\n\n\n\n<li><strong>Interest-only initial payments.<\/strong>\u00a0Many HELOCs allow interest-only payments during the draw period, making the initial required payments lower. Unless you make more than the minimum due, the principal balance remains unchanged until your post-draw period begins, in which significantly higher payments are required.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-is-a-home-equity-loan\"><strong>What Is a Home Equity Loan?<\/strong><\/h2>\n\n\n\n<p>A home equity loan is a fixed loan amount that is borrowed against your home\u2019s equity. Your home\u2019s equity is calculated as the difference between the current market value of the home and the outstanding balance on the mortgage. Because your home secures the loan, <a href=\"https:\/\/stpaulfcu.org\/rates\/real-estate-loan-rates\/\">interest rates<\/a> are generally lower compared to unsecured loans.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-key-features-of-home-equity-loans\"><strong>Key Features of Home Equity Loans:<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Lump sum disbursement.<\/strong>\u00a0Borrowers receive the full loan amount all at once.<\/li>\n\n\n\n<li><strong>Fixed interest rate.\u00a0<\/strong>Most home equity loans come with a fixed interest rate, which means the rate and monthly payments remain constant throughout the life of the loan.<\/li>\n\n\n\n<li><strong>Set repayment terms.\u00a0<\/strong>The loan is repaid over a predetermined period, which typically ranges from five to 30 years.<\/li>\n\n\n\n<li><strong>Predictable payments.<\/strong>\u00a0With a fixed interest rate and set repayment plan, borrowers know exactly how much they\u2019ll pay throughout the life of the loan, making budgeting for the loan easy.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-key-differences-between-helocs-and-home-equity-loans\"><strong>Key Differences Between HELOCs and Home Equity Loans<\/strong><\/h2>\n\n\n\n<p>Understanding the differences between these two products is crucial for deciding which is right for you.\u00a0<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-disbursement-of-funds\"><strong>Disbursement of Funds:<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>HELOCs\u00a0<\/strong>offer a revolving line of credit that can be drawn upon as needed. This makes them ideal for homeowners who are unsure of exactly how much they need to borrow or may need different sums at differing times.<\/li>\n\n\n\n<li><strong>Home equity loans\u00a0<\/strong>provide a one-time lump sum, making them the perfect choice for borrowers who know exactly how much they want to borrow and need the funds immediately.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-interest-rate-structure\"><strong>Interest Rate Structure<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>HELOCs\u00a0<\/strong>generally have a variable interest rate, which can fluctuate with market conditions. This can mean having a lower monthly payment at times during the life of the HELOC, but it can lead to rising payments as well. This factor makes it more challenging to budget for monthly payments.\u00a0<\/li>\n\n\n\n<li><strong>Home equity loans\u00a0<\/strong>typically come with a fixed interest rate, which means there are no surprises throughout the life of the loan. This can also mean significant savings for the borrower if interest rates rise, with the inverse occurring if rates drop.\u00a0<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-repayment-terms\"><strong>Repayment Terms:<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>HELOCs\u00a0<\/strong>feature flexible payment terms during the draw period; however, payments may vary once principal repayments begin.<\/li>\n\n\n\n<li><strong>Home equity loans\u00a0<\/strong>have a fixed repayment period with predictable monthly payments.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<p>If you\u2019re still unsure whether to take out a HELOC or a HEL, we can help! Whichever <a href=\"https:\/\/stpaulfcu.org\/services\/mortgages\/\" target=\"_blank\" rel=\"noreferrer noopener\">home equity product<\/a> you choose St. Paul Federal Credit Union is ready to help with great interest rates and the personalized service you\u2019ve come to expect. <a href=\"https:\/\/stpaulfcu.org\/contact-us\/\" target=\"_blank\" rel=\"noreferrer noopener\">Call, click or stop by today to learn more<\/a>.\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"<p>If you\u2019re looking to tap into your home\u2019s equity, you have two great choices in a Home Equity Line of Credit (HELOC) and a Home Equity Loan (HEL). Let\u2019s take a look at these two products, the key features of each choice and factors to consider before making a decision on which to choose.\u00a0 How [&hellip;]<\/p>\n","protected":false},"featured_media":6472,"template":"","education-category":[194],"class_list":["post-6471","education","type-education","status-publish","has-post-thumbnail","hentry","education-category-tips-resources"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.3 (Yoast SEO v27.3) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>The Difference Between a HELOC and a Home Equity Loan - St. Paul Federal Credit Union<\/title>\n<meta name=\"description\" content=\"It&#039;s important to understand the difference between a HELOC and a Home Equity Loan so you can use them to your advantage.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/stpaulfcu.org\/education\/heloc-home-equity-loan-difference\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Difference Between a HELOC and a Home Equity Loan\" \/>\n<meta property=\"og:description\" content=\"It&#039;s important to understand the difference between a HELOC and a Home Equity Loan so you can use them to your advantage.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/stpaulfcu.org\/education\/heloc-home-equity-loan-difference\/\" \/>\n<meta property=\"og:site_name\" content=\"St. Paul Federal Credit Union\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/stpaulfcu.org\/\" \/>\n<meta property=\"og:image\" content=\"https:\/\/stpaulfcu.org\/wp-content\/uploads\/2025\/07\/couplepainting.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1920\" \/>\n\t<meta property=\"og:image:height\" content=\"1280\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:site\" content=\"@StPaulFCU\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/stpaulfcu.org\\\/education\\\/heloc-home-equity-loan-difference\\\/\",\"url\":\"https:\\\/\\\/stpaulfcu.org\\\/education\\\/heloc-home-equity-loan-difference\\\/\",\"name\":\"The Difference Between a HELOC and a Home Equity Loan - 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