HELOC vs. Home Equity Loan Calculator

Understanding Home Equity Loan vs. HELOC

Both a home equity loan and a home equity line of credit (HELOC) allow you to borrow against the equity you've built in your home. However, they function very differently. This calculator is designed to highlight the primary difference in their monthly payments to help you decide which product might be right for you.

How It Works

• Home Equity Loan: This is a type of installment loan. You receive a lump sum of money upfront and pay it back with fixed monthly payments over a set term. This calculator uses the standard amortization formula to determine your consistent principal and interest (P&I) payment.
• HELOC: This is a revolving line of credit. It has two phases: a "draw period" and a "repayment period." During the draw period (which this calculator focuses on), you can borrow and repay funds as needed, much like a credit card. Typically, you are only required to make interest-only payments on the amount you've borrowed. The calculator shows this interest-only payment, which is usually lower than a home equity loan payment but does not reduce your principal balance.

Key Differences Illustrated

The calculator shows that a home equity loan offers predictability with its fixed payments that build equity. A HELOC offers flexibility and potentially lower initial payments, making it suitable for ongoing projects where the total cost is unknown. However, it's important to remember that HELOCs have variable rates, and once the draw period ends, you must begin paying back both principal and interest, which can cause your payment to increase significantly.

Frequently Asked Questions