HELOC vs Home Equity Loan: What’s the Difference?

Updated September 2025

Buying a home is one of the biggest investments you’ll ever make. As such, it requires a great deal of financial planning and consideration. Once you’ve made it through the initial process of closing on a home, there are still financial decisions to make, both in the near future and far down the road.

One of the most important questions homeowners face is how to finance the improvements, additions, or unexpected expenses they encounter over the years after buying a home. Many people choose to tap into the equity of their home, with the two most common methods being a Home Equity Line of Credit (HELOC) or a home equity loan.

It’s natural to have questions about the home loan process, particularly if you’re a first-time homeowner. Landmark National Bank is here to help you understand everything there is to know about home equity financing. In this blog, we’ll explain the difference between HELOCs and home equity loans to help you determine which is the right option for you.

Home Equity Line of Credit: How Does a HELOC Work?

A Home Equity Line of Credit, commonly known as a HELOC, is a flexible form of borrowing that allows homeowners to access funds based on the available equity built in their homes. With a HELOC, homeowners are granted a credit line, similar to a credit card, that they can draw from as needed. The amount available in the credit line depends on factors such as the appraised value of the home and the remaining mortgage balance.

How Does a Home Equity Loan Work?

A home equity loan provides homeowners with a lump sum of money upfront, which they must repay over time. This type of loan is sometimes referred to as a second mortgage because it is secured by the equity in the home. Home equity loans may have fixed interest rates and loan terms, allowing borrowers to know exactly how much they need to pay each month.

Benefits of a HELOC: Is a HELOC a Good Idea?

One of the key benefits of a HELOC is its flexibility. Homeowners have the freedom to use the funds for various purposes, whether it’s home improvements, debt consolidation, or unexpected expenses. Additionally, with a HELOC, borrowers have the option to borrow and repay multiple times throughout the “draw period,” which typically spans around 10 years. During this period, homeowners only need to make interest payments, making it an attractive option for those seeking lower monthly payments.  However, if you don’t make any payments toward the principal, you’ll have to pay the entire principal balance at the end of the 10-year term.

Furthermore, HELOCs often come with lower interest rates compared to other forms of borrowing, such as personal loans or credit cards. This can save borrowers money in interest payments over time. Additionally, the interest paid on a HELOC may be tax-deductible, making it a potentially attractive option for those seeking tax benefits.

How Home Equity Rates Can Help Toward High-Interest Debt

While HELOCs offer flexibility with a long borrowing period, a home equity loan is more consistent and predictable. Unlike a HELOC, where borrowers have access to a revolving credit line, a home equity loan is a one-time borrowing opportunity often used for larger expenses, such as major renovations, medical bills, or educational expenses. Since the funds are received upfront, borrowers have a clear understanding of the loan amount and repayment schedule from the start.

Moreover, home equity loans can be used strategically for debt consolidation. By using the loan proceeds to pay off higher-interest debts, such as credit card balances, borrowers can potentially save money on interest payments and simplify their finances.

Now that you know about home equity loans and HELOCs, here’s a quick recap to determine which loan product works best for your needs. 

HELOC (great for on-going projects or uncertain life events)

Pros:

• Flexible borrowing: take money as you need it (like a credit card).
• Pay interest only on what you borrow, not the full limit.
• Good for ongoing or unpredictable expenses (home projects, tuition, medical bills).

Cons:

• Variable interest rates—your payment can increase if rates rise.
• Temptation to overspend since funds are available over time.
• Payments may rise significantly when the repayment period begins.

Home Equity Loans (great for big ticket items and events)

Pros:

• Lump sum upfront—ideal for large, one-time expenses such as home buying or renovations.
• Fixed interest rate so you have predictable monthly payments.
• Easier for budgeting since payments don’t change.

Cons:

• Interest accrues on the entire loan amount immediately, even if you don’t use all of it.
• Less flexible—once you borrow, you can’t go back for more without a new loan.
• Closing costs and fees can be similar to taking out a mortgage.

How to Get a HELOC or Home Equity Loan with Landmark National Bank

When comparing the benefits of a HELOC vs. a home equity loan, it’s important to assess your financial situation and goals carefully. Each option offers unique benefits that cater to different needs. To navigate through these decisions confidently, it’s advisable to consult with a trusted financial institution like Landmark National Bank.

Our friendly and experienced team is ready to guide you through the borrowing process, ensuring you understand the differences between a HELOC and a home equity loan. Landmark National Bank offers competitive rates, flexible terms, and personalized service to help you make informed decisions that align with your goals.

To prepare for the application process, gather documents such as pay stubs, W-2’s and homeowner’s insurance information. You can even use these documents to apply online or speak to one of our home loan experts over the phone or at one of your local branches. 

Take control of your finances and explore the possibilities of leveraging your home equity. Find the closest Landmark National Bank to you or give us a call to learn more about our HELOC and home equity loan options.