The Home Equity Loan (HELOAN) and Home Equity Line of Credit (HELOC) are similar in a few ways:

• Both loans will take second lien position on your property
• Both loan terms may be affected by how much is being borrowed and by how qualified the prospective buyer is to purchase the property. Generally, a better credit rating will get you a better rate.
• Both loans generally carry minimal or no closing costs

Here is a helpful breakdown of differences between a HELOC vs Home Equity Loan.

An Equity Loan is very much like a car loan. In exchange for a lien against your home, you are given a cash outlay upfront. This loan is then paid back overtime on a consistent basis, with a fixed interest rate set upfront. The term of the loan can usually vary according to the customer’s discretion, however, usually caps out at 20 years with most lenders. Once the loan is paid off the lien on the property is eliminated, unless you apply for another loan.

With an Equity Line of Credit, the rate is variable while the line is in place. The rate is usually set and tied to the Prime Rate in some fashion. The Prime Rate is the rate of interest charged by US banks to major corporations at any given time. An equity line works very much like a credit card. Once the loan is paid down, it can be drawn back up without having to go through a new application process. This is done through checks that are issued at the time of closing on the loan. Due to the unique nature of this loan the lien stays in existence on the property until it is manually removed by the homeowner canceling the line of credit. In addition, there are generally annual fees for these types of mortgages that will apply as you might get on some credit cards. They will usually run between $25.00 – $100.00 per year. There also can be prepayment penalties of several hundred dollars if the line is closed within 2-3 years.