What other types of loans are similar to a HELOC?

A HELOC is a line of credit that allows you to borrow against the equity of your home, but if you’re considering this as an option, be aware that it comes with some risks and fees.

There might be a number of other lines of credit or lending options, however, that can be less risky or costly:

• Second mortgage or home equity loan: Like a HELOC, a home equity loan lets you borrower against the equity in your home. You typically borrow all the money up front and then repay it in regular monthly payments. Repayment is often required when you sell your home.
• Cash-out refinance: With a cash out refinance, you replace your existing mortgage with a bigger mortgage and take the difference in cash. Often, you have to pay closing costs. Carefully consider the interest rate, especially if it is higher than the interest rate on your current mortgage. Depending on the terms a cash out refinance may be more or less expensive than a HELOC.
• Personal line of credit: A personal line of credit lets you borrow based on your credit, instead of using your home as collateral. Credit limits may be lower and interest rates may be higher than HELOCs or other options that use your home as collateral.
• Credit card: Credit cards let you borrow up to your credit limit. Some credit card promotions allow you to pay a lower interest rate for certain number of months. But regular credit card interest rates are typically higher than for options that use your home as collateral.

Download our booklet to help you understand how HELOCs work, as well as how to shop around and watch out for pitfalls

If you want more guidance, a U.S. Department of Housing and Urban Development (HUD)-approved housing counseling agency can help you identify and evaluate the available alternatives. To find an approved agency, visit HUD’s website or call (800) 569-4287.