Home Equity Loan vs. Line of Credit vs. Home Equity Investment

Written by Banks Editorial Team
4 min. read
Written by Banks Editorial Team
4 min. read

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Do you have a large amount of equity that you want to tap into soon? There are many options, including home equity loans and home equity lines of credit (HELOCs), to swap the equity for cash. Or you can secure a residential equity investment that lets you tap into your home equity without taking out a loan.

In this guide, you’ll learn how these products work, the key similarities and differences between the three and how to decide which is best for your financial situation. 

Access Your Home Equity

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Learn how Unison can help you leverage the equity in your home to unlock financial success without accumulating extra debt.
Learn how the Unison HomeOwner co-investment program can help you tap into your home’s equity to finance your lifestyle without added debt.

Home Equity Loan vs. Line of Credit vs. Home Equity Investment: 3 Ways of Taking Equity From Your Home

Home Equity Loans

A home equity loan lets you borrow against the equity you’ve built up. Loans proceeds are dispersed in a lump sum, the interest rate is fixed, and you’ll make equal monthly payments over a set period.

Suppose your home is worth $585,000, you owe $385,000 on the mortgage and the lender permits loans for up to 85 percent of the equity you’ve built up. In that case, you could be eligible for a home equity loan of up to $112,250 ($585,000 * .85 – $385,000).

Home Equity Line of Credit

A home equity line of credit gives you access to a pool of cash you can borrow against up to the limit. You’ll make interest-only payments on the amount you withdraw for the draw period, which is usually around 10 years. 

When it ends, you can no longer make withdrawals. You will be responsible for principal and interest payments on the amount you still owe for a repayment period that generally spans 10 or 20 years.  

Residential Home Equity Investment

A home equity investment is a debt-free way to get the cash you need. You’ll get a sum of cash today in exchange for a share in your home’s future increase or decrease in value. Companies like Unison make the process seamless by offering home equity agreements of up to 17.5 percent (capped at $500,000). 

There are no monthly payments, and you can use the funds for things like eliminating debt, making a large purchase, starting a business or renovating your home. 

You’ll also have 30 years to decide if you want to sell the property or stay in the home once the contract ends and buy Unison out. 

What Things Can You Fund With Your Home Equity?

Renovate Your Home

Instead of stretching your wallet thin and emptying out your savings account, you can renovate your home with funds from a home equity loan or HELOC. Plus, the interest may be tax deductible if the money is used for qualifying home improvements. 

Pay Off Debt

You can pay off high-interest debt and possibly save several hundred or thousands in interest as the interest rates are typically lower on home equity products. Plus, you can streamline the debt payoff process by only paying one lender each month. 

Access Your Home Equity

5c99f6b46b6a57000135380dLoading TrustPilot
Learn how Unison can help you leverage the equity in your home to unlock financial success without accumulating extra debt.
Learn how the Unison HomeOwner co-investment program can help you tap into your home’s equity to finance your lifestyle without added debt.

Home Equity Loan vs. Line of Credit vs. Home Equity Investment 

Key Differences

  • Interest rate: Home equity loans offer a fixed interest rate, but you’ll likely get a variable rate that fluctuates over time with a HELOC.
  • Disbursement of funds: You’ll get a lump sum when you take out a home equity loan, but you’ll draw funds as you need them with a HELOC. 
  • Calculation of interest: The interest is built into the monthly payment on home equity loans, but you’ll make interest-only payments during the draw period on HELOCs. 
  • Repayment structure: The monthly payment on home equity loans is the same over the repayment period, but you can expect your monthly payments to change if you get a HELOC. For the latter, it’ll generally be lower during the draw period and increase once the draw period ends and the principal is added to the monthly payment amount. And you’ll only make payments on the amount you still owe on the HELOC. 
  • Risk of foreclosure: If you default on the payments for a home equity loan or HELOC, the lender could foreclose on your home and sell it to recoup the balance owed on the loan.

A home equity agreement is different from home equity loans and HELOCs as it is not a loan product. These are the main differences:

  • Home equity agreements do not have an interest rate, as they are not a loan.
  • You will not have to make any monthly payments after signing a home equity agreement.
  • The company will share the increase in your home value.

Key Similarities

Home equity loans, HELOCs and home equity investment products are all used by homeowners to tap into their equity. Lenders and investors also consider the current value in your home and the amount you have in equity to determine how much funding you’re eligible to receive. 

Home Equity Loan vs. Line of Credit vs. Home Equity Investment: Which One is Right for You?

It depends on your financial situation. If you want a way to get the equity of your home without taking on more debt, a home equity investment could be the most suitable option. 

Consider a home co-investment from Unison when researching your options. You could get between $30,000 and $500,000 today in exchange for a share in your home’s future increase or decrease in value. 

You could qualify for a co-investment with Unison with a middle-FICO score of 620 or higher. Even better, there are no monthly payments, and you’re free to use the funds however you see fit. 

Ready to get started? See how much equity you can unlock using Unison’s online estimate tool. It only takes a minute or less of your time to get an instant estimate, and there’s no impact on your credit score.

Alternatively, a home equity loan could be a good fit if: 

  • You’re looking to make a big-ticket purchase soon. 
  • You want to consolidate high-interest debt. 
  • You want a fixed interest rate and predictable monthly payments. 

And a HELOC may be ideal if: 

  • You need access to a hefty sum of money over an extended period. 
  • You want a line of credit that you can use to cover financial emergencies or unexpected expenses. 
  • You don’t mind a set draw period, variable interest rate and payments that could change over the repayment term. 
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