Home Equity: Fixed-Rate or Line of Credit - What's the difference?

Home equity is the value of your home minus any outstanding mortgage balance.  That equity can be used to secure a loan or a line of credit. Because they are secured by your residence, you enjoy lower rates and a possible tax benefit.

There are two types of loans available: a home equity line of credit and a fixed-rate home equity loan.  What is the difference?


Also called a second mortgage, this type of loan lets you borrow one time at a fixed rate and pay fixed monthly or bi-weekly payments.  You would use this option if you're looking for a one-time sum of money, perhaps for debt consolidation or a remodeling project.

Line of Credit

Commonly known as a HELOC, a home equity line of credit allows you to access cash as the need arises.  These loans typically have a variable rate.  As you pay down the principal with monthly payments, those funds become available again.  You would use this option if you need money spread out over intervals for things like medical bills, college tuition, or home improvements that you intend to do in stages.

What you need to know

Knowing just the amount of the monthly payment or the interest rate is not enough.  Pay close attention to fees including: the loan processing fee, pre-payment penalties, minimum draw requirements, appraisal, closing costs, document preparation, and recording fees or origination fees.

Want the best of both worlds? Check out the unique features ofHanscom FCU's 3 in 1 Advantage Plan.

  • Take advantage of a line of credit and a credit card. 
  • Take any portion of your line, convert it to a fixed rate advance and choose your repayment term...no application needed.
  • Get up to three fixed rate advances at a time.
  • Each advance works like an installment loan with fixed payments for the term you choose.
  • Fix your rate anytime without an application.
Learn about our 3 in 1 Advantage Plan
Home Equity FAQs - What's my rate?
Can regular home maintenance increase your home's value?

About Author

Bill Burpeau
Bill Burpeau

Bill Burpeau is a relationship manager at Hanscom FCU. As a Credit Union Certified Financial Counselor, he is an enthusiastic advocate of financial literacy and education. He constantly studies and is up to date with the latest financial management concepts and technology. Bill is a graduate of Texas A&M University with a BBA in Business Management and served in the U.S. Navy as a Supply Officer.

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