What Is The Difference Between a Home Equity Loan and a Home Equity Line of Credit?

August 31, 2016

This is a question we receive quite often at ENB. However, before we talk about how a home equity loan and home equity line of credit are different, it’s important to note how they are the same.

How Are They The Same?

Both use the equity in your home as collateral to secure the loan. Equity in your home is simply the difference between what you owe on your mortgage and what the home is worth.

A Home Equity Loan

A home equity loan is a term loan. So, the amount borrowed is paid back over the life, or term, of the loan.

  • A loan term is typically three to five years, although some banks allow the loan to be paid back over ten or fifteen years.
  • The interest rate on a term loan is fixed, meaning it will not change during the life of the loan. As a result, your monthly payment is also fixed.
  • A home equity loan is a great option for people who have a specific purpose to borrow at a specific period of time who want budget certainty.

A Home Equity Line of Credit

On the other hand, a home equity line is an open-ended or revolving loan.

  • Funds can be accessed or drawn anytime they are needed by the customer, much like a credit card.
  • Rates are variable, and are usually based on the prime rate. So as the prime rate moves up and down, the rate on the loan will move up and down. As a result, the payment on the loan will also move up and down.
  • In addition, the monthly payment is also affected by the balance on the loan. As customers draw more funds from the line, and their balance increases, their monthly payment will increase. As they pay down the outstanding balance, their payment will decrease.

The HomeLine

Here at Ephrata National Bank, we have a product called The HomeLine, which combines the best parts of a home equity loan and a home equity line of credit. Balances that are drawn on the line can be locked in at a fixed interest rate and paid back over a specified period of time. However, any remaining balances on the line are available for the customer to use or draw upon as needed. The HomeLine is a perfect option for any stage of your life.

If you have more questions, visit our HomeLine page or if you’d like to speak with someone, give us a call at (717)733.4181, or contact us today!

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