HELOC vs Home Equity Loan
A home equity loan gives you one lump sum, usually at a fixed rate with a payment that does not change. A home equity line of credit (HELOC) lets you draw repeatedly up to a limit, usually at a variable rate, with a draw period followed by a repayment period in which payments are often much higher. Both are secured by your home.
HELOC vs Home equity loan side by side
| HELOC | Home equity loan | |
|---|---|---|
| How you receive money | Draw as needed up to a limit; repaid amounts can be borrowed again | One lump sum at closing |
| Rate | Usually variable | Usually fixed |
| Payments | Often interest-only while drawing, then principal and interest | Same principal-and-interest payment every month |
| Structure | Draw period (often about 10 years), then repayment | Fixed term, fully amortizing |
| Lender can freeze or reduce? | Yes, generally, if your home value falls or finances worsen | No - the money is already disbursed |
| Best for | Ongoing or uncertain costs, such as a phased renovation | A known, one-time cost |
Full definitions: HELOC, Home Equity Loan.
When each one fits
A home equity loan fits a single, known expense - consolidating a fixed amount or paying a contractor's full bid - when you want a payment that never changes.
A HELOC fits costs that arrive in stages or are uncertain, because you pay interest only on what you have drawn. It suits borrowers who can absorb a payment increase if rates rise or when the draw period ends.
What changes your cost
With a HELOC, two things can raise your payment: the variable rate moving up, and the switch from interest-only to repayment. With a home equity loan, you pay interest on the whole amount from day one, even on money you have not spent yet.
Either one is usually a second mortgage, paid on top of your first. Borrowing more than you can repay puts the home at risk.
Home equity: value minus what you owe
Equity is the part of the home's value you own outright. It grows as you pay down the loan and moves with the market.
- Estimated equity
- $180,000
- 36.0% of the value
- Loan-to-value
- 64.0%
- Mortgage balance$320,000
- Equity$180,000
Show the numbers as a table
| Scenario | Home value | Equity | Equity % | LTV |
|---|---|---|---|---|
| Hypothetical: value −10% | $450,000 | $130,000 | 28.9% | 71.1% |
| Today (your estimate) | $500,000 | $180,000 | 36.0% | 64.0% |
| Hypothetical: value +10% | $550,000 | $230,000 | 41.8% | 58.2% |
Formula
Equity = Home value − All loan balancesLTV = Loan balance ÷ Home value × 100Assumptions
- Hypothetical scenarios only change the value; they are not forecasts.
- Selling costs (often 6% to 10%) reduce what you would actually receive.
- Lenders usually let you borrow only up to about 80% to 85% of the value across all loans.
Worked example: borrowing $60,000
Borrowing $60,000 against your home
Illustrative example - round numbers, not current market data. Calculated with Reaixo's calculator engines.
Assumptions
- Amount needed
- $60,000
- Home equity loan
- fixed 8.50%, 15 years
- HELOC
- variable, assumed to stay at 9.00%; interest-only draw period, then 20-year repayment
| Step | Calculation | Result |
|---|---|---|
| 1. Home equity loan payment (fixed) | $60,000 at 8.50% over 180 months | $590.84 |
| 2. HELOC payment while drawing (interest only) | $60,000 × 9.00% ÷ 12 | $450.00 |
| 3. HELOC payment once repayment starts | $60,000 at 9.00% over 240 months | $539.84 |
| 4. Payment jump at the end of the draw period | $539.84 − $450.00 | $89.84 |
Fixed loan payment vs HELOC draw / repayment payment: $590.84 vs $450.00 / $539.84. The HELOC starts cheaper because you pay only interest, but the payment rises by about $90 a month when repayment begins - more if its variable rate has gone up. The home equity loan costs more each month from day one but never changes.
What this calculation leaves out
- The HELOC rate is held constant for illustration; a variable rate can rise or fall.
- Closing costs, annual fees and minimum draws vary by lender and are not included.
- Both loans are secured by your home.
Common misconceptions
- The HELOC payment I start with is the payment I will keep. It typically rises when repayment begins and can rise with rates.
- An approved HELOC limit is always available. Lenders can generally freeze or cut a line if your home value falls.
- Home equity debt is unsecured. Both products are secured by your home.
Frequently asked questions
Is a HELOC or a home equity loan cheaper?
It depends on rates and how you borrow. A HELOC can cost less if you draw gradually and repay quickly; a fixed home equity loan costs more upfront but protects you from rate increases.
What happens when the HELOC draw period ends?
You can no longer borrow, and you start repaying principal and interest. Payments are often significantly higher than during the draw period.
Can I have a HELOC and a home equity loan at the same time?
Sometimes, if your combined loan-to-value stays within the lender's limit. Each lender sets how much total borrowing against the home it allows.
Calculators and guides
Recommended next step
Model draw periods, rate scenarios and fixed terms side by side.
Compare payments with your numbers →Sources and review
- What is the difference between a Home Equity Loan and a Home Equity Line of Credit (HELOC)?, Consumer Financial Protection Bureau. Supports: Lump sum versus revolving line, fixed versus variable rates, draw and repayment periods, and lenders' ability to freeze or reduce a line.
Where this applies: United States. Federal disclosure rules (TILA/Regulation Z, RESPA) apply nationwide; loan-program limits are set by Fannie Mae, Freddie Mac, FHA, VA or the individual lender.
Last reviewed: · Updated:
Worked examples use illustrative round numbers, not current market data. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
General educational information, not financial, legal, tax or real estate advice. Rules vary by loan program, transaction and location - verify important decisions with qualified professionals.