HELOC vs. home equity loan
Both let you borrow against your home equity as a second loan on top of your existing mortgage — the difference is how you get the money and how the rate works. A HELOC is a revolving line of credit with a variable rate: you draw what you need, when you need it, and pay interest only on the balance. A home equity loan is a one-time fixed-rate lump sum with equal monthly payments. Choose the HELOC for flexibility and ongoing or uncertain costs; choose the home equity loan for a known one-time expense and a payment that never changes.
- HELOC: revolving line, variable rate, draw as needed, interest only on what you use.
- Home equity loan: lump sum, fixed rate, fixed payment, fully predictable.
- Both are secured by your home — lower rates than credit cards, but your house is collateral.
- Rule of thumb: uncertain/ongoing cost → HELOC; known one-time cost → home equity loan.
- Estimate either payment: HELOC calculator · home equity loan calculator.
The core difference
A home equity loan works like a regular installment loan. You borrow a set amount once, at a fixed interest rate, and repay it in equal monthly payments over a fixed term — typically 5 to 30 years. The payment is the same every month, so it's easy to budget.
A HELOC (home equity line of credit) works more like a credit card secured by your house. The lender approves a credit limit, and during the draw period (often 10 years) you borrow as much or as little as you want, repaying and re-borrowing as needed. You pay interest only on the amount you've actually drawn, and the rate is usually variable, so your payment moves with the market. After the draw period ends, you enter a repayment period where you can no longer draw and pay down the balance — which can cause "payment shock" if you weren't planning for it.
Side by side
| Feature | HELOC | Home equity loan |
|---|---|---|
| How you get the money | Revolving line — draw as needed | One lump sum up front |
| Interest rate | Usually variable | Fixed |
| Monthly payment | Changes with balance & rate | Same every month |
| Interest charged on | Only what you've drawn | The full amount from day one |
| Best for | Ongoing / uncertain costs | A known, one-time cost |
| Main risk | Rising rates & payment shock after draw period | Paying interest on money you didn't need |
| Collateral | Your home | Your home |
When a HELOC wins
Choose a HELOC when you don't know the exact amount or timing — a phased remodel, a series of tuition payments, a business cash-flow buffer, or an emergency reserve you may never tap. You pay nothing until you draw, and only interest on what you use. The flexibility is the product. The cost of that flexibility is rate uncertainty: if rates rise, so does your payment.
When a home equity loan wins
Choose a home equity loan when you have a single, known cost — a debt consolidation, a roof replacement, a fixed-price renovation. You lock the rate, you know the payment, and you know the payoff date. If you're consolidating higher-interest debt, the fixed structure also protects you from rate swings while you pay it down. The trade-off: you pay interest on the entire balance immediately, even if you didn't need all of it at once.
What they share
Both are secured by your home, which is exactly why their rates are far below credit cards or personal loans — and exactly why they carry more risk. Miss enough payments and the lender can foreclose. Both usually let you borrow up to a combined loan-to-value of about 80–85% (your mortgage plus the new loan, divided by the home's value). Both may have closing costs, and interest may be tax-deductible only when the funds are used to buy, build, or substantially improve the home — check with a tax professional.
Frequently asked questions
What's the difference between a HELOC and a home equity loan?
Which one is cheaper?
Which is better for a renovation?
Do both put my house at risk?
Educational only — not financial advice. Compare current offers from multiple lenders before deciding. See our methodology.