Home Equity Loan vs Line of Credit: Pros and Cons - Mortgage Guys
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Home Equity Loan vs Line of Credit: Pros and Cons

As a homeowner, you pay a monthly mortgage in order to own your home. Over time, you begin to build equity in the home. Equity is the value you have in the home over what you own on your mortgage. For example, if you purchased a $100,000 home and owe only $50,000 on your mortgage, then you would have $50,000 in equity. This money can be accessed via a home equity loan or a home equity line of credit and used for a number of reasons, including home repairs or remodeling. If you have been considering tapping into your home equity, it is recommended that you learn about both types of loans, the pros and cons, to make an informed decision.

Home Equity Loan

A home equity loan is a mortgage loan taken out on the equity of your original mortgage. This lump sum can be used for renovations, additions, real estate investment, etc. The amount of equity available to you is dependent on how much you have put into your home. Generally speaking, you can take out around 80% of the value of your home, minus what you owe on your mortgage.


  • Quick access to cash when you need it
  • Low interest rates and short terms for quick payoff
  • Fixed Interest Rate
  • Interest paid may be tax deductible
  • Lump sum provided


Tapping into the full equity of your home can result in fallback if the property values in your area decline

Home Equity Line of Credit

A home equity line of credit is similar to a home equity loan except it is more like a credit card as you take out the amount of money needed at the time. With a typical home equity loan, you are receiving a lump sum of money at one time. With a home equity line of credit, you will have a certain amount of money you can borrow and that must be paid back. You are able to take the money as you need it and pay interest only on the amount you draw out.

Often times, this type of loan will have a lower interest rate when compared to a home equity loan but the rate is adjustable. This means the interest rate can rise or fall so the monthly payment you make on the loan is not a fixed payment amount.


  • Pay interest only on what you draw and not the total amount
  • Possibility of interest-only payments during the draw time frame
  • Paid interest is usually tax deductible


  • Adjustable interest rate can increase payment
  • Can easily overspend when tapping into equity which can lead to a large principle and interest payment during the repayment time frame.

As you can see, both options provide pros and cons. Our knowledgeable mortgage lenders at Mortgage Guys are happy to assist you with your mortgage needs, helping you to learn more about home equity loans or a home equity line of credit. Contact our office today to see what we can offer.