What’s the Deal with HELOCs and HELOANs? Let’s Break It Down.

Nov 13

Lately, more homeowners are looking at their home equity like a piggy bank — and honestly, it makes sense. Nearly 30% of folks are considering tapping into it, whether for renovations, debt consolidation, or just a little financial breathing room.

If you’re one of them and you’ve heard terms like HELOC or HELOAN floating around, let’s make sure you know what they actually mean — especially when it comes to how you get the money and how you pay it back. Because no one likes financial surprises.

First up: What’s a HELOC?

A HELOC (Home Equity Line of Credit) is kind of like a credit card that’s backed by your home’s equity. You don’t get a lump sum — instead, you pull money as needed, which is great if you’re tackling projects in phases or just want flexibility.

Here’s how it works:

You only pay interest on what you use.
Interest rates are usually variable (they can go up or down).
Some lenders offer fixed-rate HELOCs, but they tend to come with higher rates and less flexibility.
You can typically borrow up to 95% of your home’s value (depending on your credit, income, and other debts).

HELOC Timeline: Draw vs. Repayment

Draw Period (usually 5–10 years):

You can borrow money as needed, up to your credit limit.
You only pay interest (though you can pay down the principal too).
Funds are accessed via checks, debit cards, or online transfers.

Repayment Period (usually 20 years):

You start paying back both the principal and interest.
Monthly payments may increase, especially if you were only paying interest before.
Ask your lender about fees, rate caps, and early payoff options so you’re not caught off guard.

What About HELOANs?

A HELOAN (Home Equity Loan) is more like a traditional loan. You get all your money upfront in one lump sum, and you start repaying it right away.

Here’s the scoop:

Fixed interest rate = predictable monthly payments.
You can usually borrow up to 90% of your home’s value.
No draw period — you get the full amount at closing.
Payments start the next month and include both interest and principal.
Most HELOANs can be paid off early without penalties (but always double-check!).

Quick Comparison: HELOC vs. HELOAN

HELOC:

Draw period: 5–10 years
Repayment period: 20 years
Payments: Interest-only during draw; principal + interest later
Interest rate: Usually variable (fixed options available)
Flexibility: Borrow as needed

HELOAN:

No draw period — lump sum at closing
Repayment starts immediately
Payments: Principal + interest from the start
Interest rate: Fixed
Predictable monthly payments

Final Thoughts

Whether you go HELOC or HELOAN, remember: your home is the collateral. So it’s super important to understand how repayment works and what fits your financial situation best — not just what your neighbor or TikTok recommends.

If you’re curious about which option might be right for you, I’m happy to connect and walk you through it. No pressure, just good info and smart planning.

Disclaimer: This info is for educational purposes only. Loan programs, rates, and terms can change without notice. All loans are subject to underwriter approval. Always consult a tax advisor or accountant for eligibility on deductions. HELOCs are brokered loan products and may have state-specific restrictions.

Tina Hagen