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Home Equity Loan vs
Home Equity Line of Credit:
How Are They Different?

African American couple shaking hands with a bank advisor after signing a contract.

Home Equity Loan vs Home Equity Line of Credit

Home equity loans and home equity lines of credit (HELOCs) are both similar financial tools used by homeowners who need a quick source of funding. If you’re considering borrowing against your home, it’s important to understand the differences between a home equity loan and a home equity line of credit. This guide will provide you with the basics of the two options so you can make an informed decision. 

Home Equity Loans:

Home equity loans are a type of secured loan that enables homeowners to borrow money using their home equity as collateral. With this kind of property loan, you can access a lump sum of cash, and the loan terms typically include a fixed interest rate and repayment period. When applying for a loan like this, lenders consider various factors like your credit score, payment history, loan amount, and income to determine the interest rate you qualify for. A higher credit score and a strong financial history can often result in more favorable terms and a lower interest rate.

Having a good credit score can significantly impact the interest rate you’ll receive on a property loan. If your credit improves after obtaining the loan, you might be able to refinance for a lower interest rate. To qualify for a loan, you’ll generally need a good amount of home equity, typically 15% to 20% or more. Repayment of these funds occurs on a fixed schedule over the loan term, with monthly payments determined by the amount borrowed, term length, and interest rate. Rates can be found under UCCU’s loan rates page. 


One advantage of a fixed-rate home equity loan is that your payments are predictable over time. From the start of the loan, you know exactly what your interest rate and payments will be for the entire duration. These payments don’t change during the payback period, providing stability and ease of budgeting.The fixed interest rate also provides stability and protection against potential rate increases in the future. This can be particularly beneficial if you prefer a consistent payment schedule and want to avoid any surprises or uncertainties associated with variable interest rates. 

Learn more about UCCU Home Equity Loans

How Does a Home Equity Line of Credit Work?

A home equity line of credit (HELOC) works similarly to a credit card. You are approved for a line of credit up to a certain amount, which you can borrow against as needed. Secured lines of credit, like HELOCs, are often based on the equity in your home. This means that lenders typically allow borrowers to borrow a percentage of their property’s equity, commonly ranging from 80% to 90%. At UCCU, we offer different types of HELOCs to suit your financial needs. These lines of credit include a standard or initial fixed rate. 

What is a Standard Home Equity?

A Standard Home Equity offers a low introductory rate and the longest draw period, allowing a homeowner to draw from their equity, anytime, for 10 years. Learn more here

What is an Initial Fixed Rate Home Equity? 

An Initial Fixed Rate Home Equity provides a single rate that’s guaranteed not to change for the established fixed rate period (5- or 10-year options available). The Initial Fixed Rate Home Equity also comes with a 5-year draw period that allows you to access your equity well after the closing date. Learn more here.

Draw Periods

When you obtain a HELOC, you are given a draw period, which is the length of time during which your line of credit will stay open. Draw periods typically average 10 years. During this period, you can withdraw funds as needed and make interest-only payments. After the draw period ends, you enter the repayment period, which can range from 10 to 20 years, during which you repay both the principal and interest.

Applying for a HELOC

When applying for a HELOC, your credit score, such as a FICO score, and payment history will also be considered. Lenders use your credit score to assess your creditworthiness and determine the level of risk they undertake by extending a line of credit to you. A higher credit score indicates a lower risk, which can result in a higher credit limit and lower interest rates on your HELOC. It’s important to note that while a HELOC provides flexibility, it’s essential to manage it responsibly and make timely payments to avoid any negative impacts on your credit scores. 

Learn more about UCCU’s HELOCs.

Similarities: Home Equity Loan vs. Home Equity Line of Credit

The primary similarity between home equity loans and home equity lines of credit (HELOCs) lies in the fact that they both utilize the equity you have accumulated in your home as collateral. In other words, the value of your property serves as a guarantee for the loan. However, it’s important to note that failing to make payments on either type of loan could put your home at risk of foreclosure, as the lender has the right to claim ownership of the property. 

Given this potential consequence, it becomes vital to carefully assess your financial situation and the purpose for which you need the loan before deciding between a home equity loan and a HELOC. Understanding your specific needs and goals will help you determine which option aligns better with your circumstances. Additionally, it’s wise to consider factors such as your income, credit history, and repayment capabilities to ensure that you can comfortably meet the financial obligations associated with either choice. By making an informed decision, you can safeguard your home and navigate the borrowing process with confidence. 

Which One is Right for You?

In most cases, HELOCs are considered the better choice. They typically offer lower interest rates, fewer fees, and more flexible terms compared to other options. With a HELOC, you can borrow the exact amount you need, whenever you need it. This flexibility is especially useful when you have upcoming expenses like tuition fees, a wedding, or a family vacation. It allows you to access funds at the right time, giving you greater control over your finances and the ability to make smart decisions. Overall, a HELOC provides a convenient and adaptable way to manage your borrowing needs. 

Personal Lines of Credit

Personal lines of credit are another financial tool to consider. A personal line of credit is an unsecured revolving credit account that can be used for various purposes, including home improvements, unexpected expenses, or consolidating high-interest debts. Unlike a home equity loan or HELOC, a personal line of credit is not tied to the equity in your home. Instead, it is based on factors such as your credit history, income, and financial stability. 

Put Your Home’s Equity to Good Use at UCCU

Many homeowners find HELOCs to be a versatile financial tool, using them for a wide range of purposes. They can be used to fund home repairs or renovations, consolidate higher-interest debts into one manageable payment, cover important expenses such as medical bills or education costs, or simply provide a safety net for unexpected financial needs. 

At UCCU, we understand the diverse needs of homeowners, which is why we offer a variety of options tailored to individual circumstances. Moreover, we strive to provide a seamless borrowing experience by eliminating origination fees, closing costs*, and a seamless quick process, ensuring that you have the flexibility and advantageous terms you deserve.Talk to a UCCU Home Equity Expert today to review different home equity line of credit options.

See Our Home Equity Options

*APR = Annual Percentage Rate. Financing is subject to UCCU membership and underwriting criteria. Not every applicant will qualify. Property insurance is required. Variable rates based on the Prime Rate as published in the Wall Street Journal on the 15th day of the month prior. No closing costs and no fee options available: Conditions apply. Appraisal fee may apply if loan amount is greater than $400,000 or if required by the underwriter. If the loan is paid off within 24 months of funding date, reimbursement of all third party fees required. These may include but not limited to title, automated valuation, and insurance fees. Rates, terms, and programs are subject to change and without notice. Equal housing lender. NMLS # 407653. Federally insured by NCUA.