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What is The Difference Between Home Equity Loan and HELOC?

Nov 11, 2022
What is The Difference Between Home Equity Loan and HELOC?

Emergencies can dawn upon us at any time. It is always recommended to stay ahead of time and be prepared for any calamity that may occur. When needed, it can often be difficult to arrange for liquid funds immediately. Borrowing personal loans may not give you more than INR 25 lakhs at once. Thus, for much larger requirements, a home equity loan is a good option to turn to.

Every house under individual possession carries with it a home equity. This is the amount which will determine how much loan you will be allowed to take on against the property

Home Equity Loan vs. HELOC - An Overview

Both home equity loans and HELOC are given out by lending financial institutions in exchange for the applicant’s house as collateral. This amount is determined by equity, and the loans obtained through home equity and HELOC usually come with better interest rate options than personal loans because they are unsecured, while home equity loans and HELOC are secured loans.

What is a Home Equity Loan?

A home equity loan comes under several other titles, like a home equity installment loan and a second mortgage loan. With a home equity loan, you can get a huge amount upfront.

The equity is calculated by what remains after you take away the amount of mortgage that is pending to be paid to the lender from the actual market value of your house. At any given point in time, this value is fixed, but over time, it can grow with the increase in real estate valuation or with the payment of each mortgage section.

Loan Collateral and Equity Loan Terms

The collateral for the home equity loan is your housing property, of the same value as the borrowed amount. This means that if the borrower fails to repay the entire loan amount within the specified period of time, the lender has the right to sell off the house to gain back the amount owed. With this kind of loan, you can choose your repayment tenure and begin your EMIs. Throughout the timeline that you have chosen, your principal and interest amounts will remain constant. The longer the repayment tenure, the lower the EMI.

Must Read: What is a Collateral Loan?

Pros and Cons of Home Equity Loan

Below are the pros and cons of a home equity loan:

1. Pros:

  • With a fixed rate of interest, this kind of loan makes financial planning easy and accurate for the borrower.
  • You can receive a large amount of money at once in your account to spend for whatever reason you wish.
  • Interest rates are lower than that in a personal or business loan.

2. Cons:

  • One needs an impeccable credit history and high income from secure sources.
  • If you fail to pay off your loan, the lender could foreclose on your home.

Home Equity Line of Credit

Let’s look at what makes the difference between a HELOC and a home equity loan.

Home Equity Line of Credit or HELOC is the alternative to home loan equity which doesn’t provide a bulk amount, but instead gives a credit limit below which the borrower can make withdrawals. For instance, if you need funds for your home renovation, you can borrow a certain amount, repay this bit, then opt for a second withdrawal.

Because of this variability, the tenure and rate of interest vary. HELOC is a great option for business owners, as well.

Pros and Cons of HELOC

Below are the pros and cons of a HELOC:

1. Pros:

  • You can avail a low APR (annual percentage rate) to repay your debt.
  • There are low restrictions on how to use your money.
  • A flexible timeline for repayment follows.

2. Cons:

  • Your home is up as collateral, risking your ownership if you fail to repay the loan
  • The variable interest rates make your financing unpredictable.

Differences Between HELOC and Home Equity Loan

HELOC vs home equity loan can be understood through differences:

  • Interest Rates: Home equity loans come with fixed interest rates while HELOC interest rates keep fluctuating.
  • Funds Dispatched: Home equity loans come with a lump sum of cash added into your account while HELOC allows you to borrow according to the line of credit.
  • Repayment: Home equity loans come with fixed tenures and allow EMI repayment. HELOC has changing amounts of repayment.
  • Terms: The tenure of home equity loans begins from the day of lending. HELOC works in two parts, the withdrawing and repaying tenures.
  • Applications: Home equity loans are for bulk funding, like entrepreneurship, emergency medical expenses, higher education abroad, etc. HELOC is for regular fund necessities, like to fuse heavy credit card debt or to make home renovations.


Before deciding upon which option to choose, it is best to research the difference between a home equity loan and a line of credit to make the most of your experience. Currently, SMFG Grihashakti does not offer home equity loans to individuals, but it has in store a much safer option, Loan Against Property. This is a great bet for someone looking for low-risk, high-benefit options.

You can read more about the charges and features of Grihashakti’s loan against property online and decide upon your EMI through its online calculator. Choose your loan type very carefully when it comes to offering your home as collateral.

Disclaimer: *Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG Grihashakti. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG Grihashakti’s policy at the time of loan application. If you wish to know more about our products and services, please contact us.

SMFG India Home Finance Co. Ltd. (Formerly Fullerton India Home Finance Co. Ltd.)
CIN number: U65922TN2010PLC076972

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