Both let you borrow against your home and keep your first mortgage. A home equity loan pays a lump sum at a fixed rate; a HELOC is a line of credit you draw on as you need it, usually at a variable rate.
Side by side
| Home equity loan | HELOC | |
|---|---|---|
| How you get the money | All at once, at closing | Drawn as you need it, up to the limit |
| Rate | Usually fixed | Usually variable |
| Payments | The same each month from the start | Often interest only while you draw, then principal and interest |
| Interest | On the full amount from day one | Only on what you have drawn |
| Best for | A one-time cost you want repaid on a schedule | Costs spread over time, or money you may not need |
| Lender changes | None once closed | The lender can freeze or reduce the line if your home’s value falls |
When a home equity loan fits
- You know the amount you need now.
- You want a fixed payment and a fixed rate.
- You’re consolidating debt and want a firm payoff date.
When a HELOC fits
- The cost comes in stages, such as a renovation.
- You want money available without paying interest until you use it.
- You expect to repay quickly and want flexibility.
Guides and calculators
- Second mortgages & HELOCs
- HELOC vs home equity loan calculator
- Blended rate calculator
- HELOC vs cash-out refinance
- Cash-out refinance calculator
Questions
Is a home equity loan or a HELOC better?
A home equity loan suits one known amount you want to repay on a fixed schedule; a HELOC suits costs that come over time. Many people with a big project and a fixed budget choose the loan; those wanting a safety net choose the line.
What happens when a HELOC draw period ends?
You can no longer draw, and the payment changes to principal and interest over the repayment period, so it usually rises. Planning for that jump, or refinancing before it, avoids surprises. See also: HELOC vs home equity loan calculator.
Can a HELOC pay off debt?
Yes, and it often costs less than credit cards. The risk is that the debt is now secured by your home and the rate can rise, so it works best with a firm plan to repay. See also: HELOC vs cash-out refinance.
