HELOC — A revolving line of credit with a variable rate. Draw funds as needed during a 5-10 year draw period, then repay. Like a credit card secured by your home.
Home Equity Loan — A lump-sum loan with a fixed rate and fixed monthly payments. You get all the money upfront and pay it back on a set schedule.
HELOC — Best For:
- Ongoing projects with unknown total costs
- Emergency fund backup
- Debt consolidation with variable payoff timeline
- You can handle rate fluctuations
- You only need part of the money now
Rate: Variable (changes with prime rate)
Home Equity Loan — Best For:
- One-time expenses with known cost
- Home renovations with contractor bids
- Debt consolidation with a fixed payoff plan
- You want predictable monthly payments
- You need the full amount immediately
Rate: Fixed (never changes)
Cost Comparison Example
Borrowing $50,000 against your home equity:
HELOC at 7.5% variable
Interest-only during draw period: ~$313/month
After draw, 15-year repayment: ~$464/month
Total interest over life: varies with rate changes
Home Equity Loan at 8.0% fixed
Fixed payment for 15 years: ~$478/month
Total interest over life: ~$36,000
Payment never changes
Risks to Consider
Both products use your home as collateral. If you can't make payments, you risk foreclosure. HELOCs carry additional rate risk — if the Fed raises rates, your payment goes up. Home equity loans carry opportunity cost — if rates fall, you're locked into a higher rate.
Compare Your Options
Use our HELOC Payment Calculator to estimate HELOC payments, our Home Equity Loan Calculator for fixed-rate comparisons, and our Refinance Calculator to explore if refinancing your primary mortgage is a better option.