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Home Equity Loan vs HELOC vs Home Improvement Loan, All You Need to Know

Home Equity Loan

The home equity loan is a type of loan in which an individual can borrow against the value of property or home. It is easy to qualify. Against value of home or property, it is sanctioned. It offers access to a lump some money.

Uses of home equity loan

A home equity loan can be used for anything. A large amount of money can be borrowed because property usually has lots of value. Some of its uses are-

  • It can be used to purchase land or a property,

  • For the purpose of renovation or remodeling of the house,

  • To pay debts of high-interest,

  • It can be used for personal affairs such as education, marriage or business.


  • Interest rates are very low when compared with personal loans or other unsecured loans.

  • Borrowers can get large loans against their property.

  • It is easy to qualify for home equity loans irrespective of bad credits that an individual has. Lenders have enough within their hands that can cover the risk.

  • It is safe for lenders i.e., the loan is termed as secured with the property as collateral.


  • Failure in payment of monthly debt can result in losing the property to the lender.

  • Borrowing money against home very frequently can turn into a costly habit. If the loan taken falls into the category of bad debt which is used for luxuries can cost thousands of expensive dollars.

Home Equity Line of Credit (HELOC)

It is the same as home equity loan in which homeowners can borrow amount against their property. Heloc is a loan that is set up or used as a line of credit to withdraw maximum amount rather than a fixed amount. Most of them are second mortgages. They have a draw period. During this period the line can be used by the borrower. Draw periods last for 5 to 10 years. The borrower only pays interest during this period. During the period of repayment, the amount needs to be repaid. It lasts for 10 to 20 years. At its end, the borrower needs to pay the principal that is the same as the balance divided by a total number of months present in the repayment period.


  • It offers a great deal of flexibility. The borrower can borrow as little or as much as per the wish. Payment thereby varies every month and is dependent on the total amount that borrower owes at that time.

  • It is the same as using credit cards with interest rates that are relatively low. Since lenders are not at risk of losing anything, interest rates are quite low.

  • It can be used to zero the monthly payments of credit cards and other mortgages. Once financially equipped, the amount borrowed using HELOC can be paid back.


  • Failure in payments can result in loss of the property.

  • The borrower needs to pay closing costs.

  • If the line of credit is used only for small amounts then the fees, points, and charges can sum up and result in making the total cost very expensive.

Similarities between home equity loan and HELOC

  • Both of them demand property appraisal as well as the credit check.

  • A homeowner can borrow money against the value of the home in both the cases.

  • Both of them demands repayment within a fixed amount of period. In both the cases, they accrue the interest.

Differences between home equity loan and HELOC

  • In the case of a home equity loan, the borrower receives the lump sum amount. In the case of Heloc, the borrower can borrow as little or as much from the maximum amount. He can even withdraw the amount many times as and when required.

  • The interest rate is fixed in home equity loan. In the case of HELOC, interest rates fluctuate and are adjustable.

  • In both the cases, there is a risk of losing the property if the borrower fails to pay the amount.

Home Improvement Loan

A home improvement loan is of great help if the home or property requires work and the owner cannot tackle it due to lack of resources. This kind of loan can successfully fund everything from buying small articles to spending large amounts on construction, remodeling, and renovations.


  • All the necessary repairs and renovations can be made that will raise the value of the home.

  • Increase in the value of a property will pay off the loan by itself.

  • It facilitates the timely and much-needed repairs. There is no need to postpone the same or wait for some savings.


  • The economy is the crucial factor that plays an important role. In the case of the poor economy, interest rates rise up. As a result, it would cost the borrower more than the value his property would enjoy.

  • If the contractors do not work efficiently the whole amount spent on renovations will get wasted. His work would fail to add value to the property.

Differences between HELOC and home improvement loan

They have significant differences between them. Depending on how the funds are used and dispersed, the differences gain more visibility. Owners of the property who need money for bringing improvement in the property and are certain about the specifics can choose either of them. The borrowers who are not certain regarding the specifics related to the amount that will be spent on improvements and the timing should better choose HELOC.

Some of the differences are:

  • HELOC is given against the equity in the property. Home improvement loans do not require the equity.

  • Repayment period of HELOC is generally longer than the home improvement loan.

Differences between home equity loan and home improvement loan

  • Payments begin as soon as the borrower is approved for the payment in case of a home equity loan. In case of home improvement loan, the payment begins when the renovation work gets completed.

  • The home equity loan can be used to pay anything and everything. On the other hand, the home improvement loan can only be used for remodeling and renovation purposes.


Different types of loans are available and each of them serves a different purpose. Home equity loan and HELOC can be taken against the value of the home. A home equity loan is regarded as best if the borrower needs the amount for big renovations or for major general expenses. HELOC is a line of credit and is best if borrower adores flexibility that it offers. It can be used to zero down other mortgages and outgoings. A home improvement loan can be termed as best if the borrower needs amount to spend on a specific home project that can be anything such as replacing roof or purchasing of the furnace.