Homeowners today have more borrowing options than ever. Knowing how these options differ can save you thousands. In particular, there are five common ways existing homeowners may be able to borrow to accomplish big goals. These include:
- Home equity loans
- Traditional home equity lines of credit
- Cash-out refinance loans
- Personal loans
- Credit cards
But there's also a new sixth option: A HELOC.com line of credit.
A HELOC.com line of credit is a home loan that uses your house as collateral, but it doesn't affect your current mortgage. It's a new loan you take out, secured by your house, that gives you an upfront lump sum and lets you redraw the principal you've repaid during the draw period — all without refinancing your first mortgage.
With the HELOC.com line, you can get approval in as little as five minutes and loan funding in as little as five days3. These loans also offer benefits that other loans don't. Here's how the HELOC.com line compares to other borrowing options.
HELOC vs. Borrowing Alternatives at a Glance
HELOC.com vs. Home Equity Loan
A HELOC.com line of credit and a home equity loan are both typically fixed-rate loans that allow you to borrow against your house while keeping the rate and terms of your first mortgage unchanged.
The biggest difference between a HELOC.com line and a home equity loan is that you can borrow as much as you need within a given limit during the draw period with a HELOC.com line, while a home equity loan doesn't offer this flexibility.
With a home equity loan, if you borrow $100,000, you receive that money up front and do not get to borrow again without obtaining a new loan. The HELOC.com line is more flexible. As you repay the initial distribution, you can borrow again within the draw period, up to the maximum loan limit. For example, if you paid back $30,000 in principal of your $100,000 loan, you can redraw $30,000 during the draw period as needs arise.
That's not the only difference. With a traditional home equity loan, accessing additional equity requires applying for an entirely new loan. This means you're facing a new underwriting process with a hard credit inquiry. With a HELOC.com line, though, additional draws during the draw period don't trigger a new hard credit pull.
When you take a new draw, the rate on each additional draw will differ from the rate you paid when you first borrowed. The rate on your new draw is set based on the Prime Rate plus a fixed margin, which is defined in your loan agreement4. However, your agreement also specifies a rate floor and a rate ceiling, providing some predictability regardless of market conditions at the time.
HELOC.com vs. Traditional Home Equity Line of Credit
While both a HELOC.com line of credit and a traditional home equity line of credit allow you to redraw or re-borrow over time as needed, a HELOC.com line works differently in a few ways.
First, you receive the full amount borrowed up front with a HELOC.com line, while a traditional home equity line of credit gives you access to a line of credit to use as needed. A HELOC.com line provides an up-front distribution plus the chance to redraw after you pay back principal.
Rates and payments also work differently with a HELOC.com line of credit than with a traditional home equity line of credit. Specifically, the rate on the HELOC.com line is fixed, while traditional home equity lines of credit often have variable interest rates. That means monthly payments could change over time.
With a HELOC.com line, the initial amount funded at closing has a fixed interest rate. If you redraw funds during the draw period, you'll have a new fixed rate on that new draw amount, based on current market rates at the time. Since the rate is always fixed, you'll know up front what your interest charges and total payments will be for each draw.
Your payments on the HELOC.com line also cover principal and interest, while some traditional home equity lines of credit allow you to make interest-only payments for the term of the loan, with a balloon payment for the entire principal balance at the end of the term. You pay back both principal and interest with the HELOC.com line from the start, so you avoid this large payment.
HELOC.com vs. Cash Out Refinance Loan
The HELOC.com line of credit is a separate additional loan that allows you to access equity in your home without changing your first mortgage. A cash-out refinance loan is a single new mortgage loan you use to pay off your current home loan and borrow more than the balance to walk away with cash. It can simplify repayment by giving you just one loan, but there are downsides.
If you opt for a cash-out refinance, you will get a new interest rate and restart the term of your mortgage. Your new loan will usually last for 30 years. For example, if you'd been paying on your current mortgage for a decade, you'd add 10 years to your repayment clock in a new 30 year loan term.
If you like the interest rate on your current mortgage or don't want to reset your payment timeline, a cash-out refinance loan may not make sense.
A cash-out refinance loan can also take a long time from start to funding. It usually takes weeks or months to complete a cash-out refinance loan, while you can get a decision on the HELOC.com line in as little as five minutes and often get the funds in as little as five days3.
HELOC.com vs. Personal Loan
A personal loan is usually unsecured, which means you don't need home equity or a lien on your property to qualify. You receive the approved amount right away and repay it over time. Once the funds are used, you generally cannot borrow again using the same loan.
A HELOC.com line is secured by your home and requires available equity. Because the loan is secured, rates may be lower than on an unsecured personal loan, but your home is at risk if you don't repay the debt. You may also need to provide more documentation, and some borrowers may need a home appraisal as part of the process.
The borrowing structure is also different. With a HELOC.com line, you receive the initial approved amount up front, and as you repay principal, the paid-down amount becomes available to redraw during the draw period. That can make the loan more flexible for borrowers who expect their financial needs to change over time.
A personal loan may make more sense if you do not want to use your home as collateral or do not have enough equity to qualify. A HELOC.com line may be a better fit if you want to preserve your first mortgage, need flexibility, and are comfortable borrowing against your home.
HELOC.com vs. Credit Card
Credit cards and a HELOC.com line of credit can both be used to cover major expenses, but the structure and risk are very different.
Credit cards are revolving unsecured debt. They don't require home equity, and you don't have to use your home as collateral to guarantee you'll repay the debt. They can be much faster and easier to access for smaller purchases or short-term borrowing.
However, credit cards often have variable rates that can be significantly higher than those for other kinds of debt, so making only the minimum payment can lead to rapidly increasing costs.
The tradeoff is collateral. A credit card does not put your home on the line, while a HELOC.com line does. A HELOC.com loan is secured by your home, which typically allows for lower rates than credit cards.
A HELOC.com line of credit also offers a different repayment structure. You receive an initial lump sum up front, and as you repay principal, you can borrow again during the draw period. Each new draw is assigned a new fixed rate at the time when it's funded, which provides more payment certainty than revolving card balances with variable APRs.
Because of the easier application process and the fact that the debt isn't secured by your house, a credit card may be more appropriate for routine spending or smaller short-term needs, while a HELOC.com line may be a better fit for larger planned expenses where preserving your first mortgage and accessing home equity are the priority.
Which Loan Is Right for You?
You'll need to decide which loan makes sense based on:
- Whether you want to preserve your first mortgage.
- Whether you need ongoing access to credit during a draw period.
- Whether you prefer principal-and-interest repayment from the start.
- Whether you are comfortable using your home as collateral.
If you want to tap equity and keep the rate on your first mortgage but aren't sure if a home equity loan or traditional home equity line of credit is right for you, the HELOC.com line of credit might be an option to explore.
If HELOC.com sounds like a fit, you can start your online application or connect with our team by phone, text, or chat to learn more. With the HELOC.com line, you can get approval in as little as 5 minutes and receive funding in as little as five days3.