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- Pre-qualify in minutes; funding in as few as 5 days
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Summer is a popular season for real estate investments, particularly vacation and second homes. Whether you’re buying a lakeside retreat or a mountain escape, tapping into your home’s equity can be a powerful financing strategy. But what’s better—a Home Equity Line of Credit (HELOC) or a Home Equity Loan? Understanding their differences is key to choosing the right one for your summer property acquisition.
What Is a HELOC?
A Home Equity Line of Credit (HELOC) is a revolving line of credit that uses your home’s equity as collateral. Much like a credit card, it allows you to borrow money as needed up to a set limit.
Pros:
- Flexible access to funds: Borrow only what you need, when you need it.
- Interest-only payments: Some HELOCs allow for interest-only payments during the draw period.
- Lower initial rates: HELOCs often have lower starting interest rates than fixed loans.
Cons:
- Variable interest rates: Your payments may rise over time.
- Risk of overspending: Easy access to funds can lead to unplanned debt.
- Draw period limitations: After the draw period (typically 5–10 years), you must repay the principal.
What Is a Home Equity Loan?
A Home Equity Loan, also known as a second mortgage, gives you a lump sum of money upfront, repaid in fixed monthly installments over a set period.
Pros:
- Fixed interest rate: Predictable payments make budgeting easier.
- One-time disbursement: Ideal if you know exactly how much you need.
- Structured repayment: Clear timeline to pay off the debt.
Cons:
- Less flexibility: You can’t borrow more without reapplying.
- Higher monthly payments: You begin paying both principal and interest immediately.
- Potential for over-borrowing: Taking too large a lump sum may strain your budget.
HELOC vs Home Equity Loan: Key Differences
| Feature | HELOC | Home Equity Loan |
| Disbursement | Revolving line of credit | Lump sum |
| Interest Rate | Variable | Fixed |
| Repayment Structure | Interest-only (draw), then principal | Principal + interest immediately |
| Flexibility | High | Low |
| Best For | Ongoing or unpredictable expenses | One-time, large expense |
Which Is Better for Summer Property Acquisitions?
Choose a HELOC if:
- You’re unsure of the exact costs—e.g., renovations, repairs, or furnishings.
- You want flexible access to funds over time.
- You anticipate paying down the balance quickly, reducing exposure to rate increases.
Choose a Home Equity Loan if:
- You know precisely how much the purchase or down payment will cost.
- You prefer predictable payments with a fixed rate.
- You’re comfortable with a long-term repayment structure.
FAQ
Can I use a HELOC or Home Equity Loan as a down payment on a summer home?
Yes. Both can be used as a down payment on a second property, but some lenders may have restrictions. It’s best to consult your mortgage advisor to ensure compliance with their terms.
Will tapping into home equity affect my primary mortgage?
No. These loans are separate from your primary mortgage. However, both increase your total debt, which can impact your credit and future loan eligibility.
Are there tax benefits?
Interest on home equity financing may be tax-deductible if the funds are used to buy, build, or substantially improve the home securing the loan. Always consult a tax advisor to confirm your eligibility.
Read Next
- HELOC Requirements for Real Estate Investors in 2025: Updated Guide
- How to Combine HELOCs and DSCR Loans for Maximum Leverage
Using your home’s equity can be a smart way to make your summer property dream a reality. Whether you prefer the flexibility of a HELOC or the structure of a Home Equity Loan, the right financing strategy can help you maximize value while maintaining financial security.
Unlock Your Home Equity with Figure
- 100% online application—no in-person appraisal needed
- Pre-qualify in minutes; funding in as few as 5 days
- Borrow up to $400,000 with flexible terms
- Soft credit check—no impact on your score
Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
