skip to main content
Home Equity

Ready to apply?

Get started for a mortgage

Call a loan officer with questions or to apply.

1.866.290.4479

Mon.–Fri. 8 a.m.–10 p.m. ET
Sat. 8 a.m.–6:30 p.m. ET

Home Equity Loan Basics

Home equity loan vs. line of credit

If you’re considering borrowing from the available Glossary Term: equity in your home, you may wonder about the similarities and differences between a home equity loan and a home equity line of credit. Here’s a quick look at some of the key factors to consider.

What you might use the funds for

A home equity loan is often used for large one-time expenses, like big home-improvement projects.

A home equity line of credit is often used to cover various expenses that you may incur over an extended period of time, like ongoing home repair, tuition, or other necessary expenses.

How you receive your funds

With a home equity loan, you receive a lump sum when your loan closes. So you’ll receive the entire amount of your loan at one time.

With a home equity line of credit, you’ll get a line of credit that you can draw from as needed during the permitted draw period, which is generally 10 years. You’re typically allowed to borrow as little or as much as you like, up to the maximum limit of your credit line. Most lenders will provide you with options to easily access your credit line; for example, checks, online banking, and an access card that functions like a credit or debit card except that your purchases get charged to your home equity line of credit which is secured by your home.

Interest rates

Home equity loans have a fixed rate, so you’re protected from payment fluctuations throughout the life of the loan. Because of this, rates for home equity loans can be higher than for home equity lines of credit.

Home equity lines of credit have a Glossary Term: variable interest rate. The rate is based on an index plus a margin and will vary with the index. Home equity lines of credit typically carry lower interest rates than home equity loans. Some home equity lines of credit have an option during the loan term to convert all or a portion of the outstanding variable rate balance to a fixed rate. Bank of America home equity lines of credit include this fixed-rate conversion option.

How you repay the funds

With a home equity loan, you’ll pay the loan back on a monthly repayment schedule, and your monthly Glossary Term: principal and Glossary Term: interest payments will remain the same.

With a home equity line of credit, you may have the option to make monthly payments of interest only during the Glossary Term: draw period (which is generally 10 years), and then you’ll be obligated to pay principal plus interest during the repayment period (usually 15 years). You may also pay all or a portion of the principal, along with interest, during the draw period, usually without penalty. Paying down your principal during the draw period allows you to replenish the amount of available credit you have to borrow against. Regardless of how you decide to make your payments, you’ll only have to pay interest on the principal you’ve withdrawn from your credit line.