Last updated: March 2026
Home Equity Loans vs HELOCs
Homeowners often tap their equity for major expenses, but choosing between a home equity loan and a HELOC depends on how you plan to use the funds, your comfort with rate risk, and whether you need the money all at once or over time.
A home equity loan delivers a lump sum at a fixed interest rate with fixed monthly payments over a set term — typically 5 to 30 years. This works best for one-time expenses with a known cost, like a kitchen renovation, debt consolidation, or a major purchase. You know exactly what you'll pay every month, making budgeting straightforward.
A HELOC (Home Equity Line of Credit) functions like a credit card secured by your home. You get a credit limit and can draw funds as needed during the draw period (usually 5-10 years), paying interest only on what you borrow. After the draw period ends, you enter the repayment period (10-20 years) and pay back principal plus interest. Most HELOCs carry variable rates tied to the prime rate.
The rate structure creates very different risk profiles. Home equity loan rates are fixed, so your payment never changes regardless of market conditions. HELOC rates fluctuate — if the prime rate rises by 2%, your HELOC rate rises by 2%, which can significantly increase your payment. In a rising-rate environment, a fixed home equity loan provides more certainty.
However, HELOCs offer flexibility that home equity loans cannot. If you're funding an ongoing project (like phased home improvements), you only pay interest on what you've drawn. If you borrow $20,000 of a $50,000 HELOC, you pay interest on $20,000 — not $50,000. You can also repay and re-borrow during the draw period.
Both products use your home as collateral, which means foreclosure is a real risk if you default. Borrow conservatively, keep your combined loan-to-value ratio under 80%, and ensure the monthly payments fit comfortably within your budget. Use this calculator to model different amounts and terms before committing.
This calculator provides estimates for educational purposes only. Home equity loan and HELOC terms vary by lender, credit profile, and property value. Consult a financial professional for personalized advice.
Frequently Asked Questions
What is the difference between a home equity loan and a HELOC?
A home equity loan gives you a lump sum with a fixed interest rate and fixed monthly payments — like a second mortgage. A HELOC (Home Equity Line of Credit) works like a credit card: you get a revolving credit line, draw funds as needed during a draw period (usually 10 years), and then repay during a repayment period (10-20 years). HELOCs typically have variable rates.
How much equity can I borrow against?
Most lenders allow you to borrow up to 80-85% of your home's appraised value, minus your existing mortgage balance. This is called your combined loan-to-value (CLTV) ratio. If your home is worth $400,000 and you owe $250,000, you have $150,000 in equity. At 80% CLTV, you could borrow up to $70,000 ($400,000 x 0.80 - $250,000).
Are home equity loan interest payments tax-deductible?
Interest on home equity loans and HELOCs is tax-deductible if the funds are used to buy, build, or substantially improve the home securing the loan. Interest on funds used for other purposes (debt consolidation, vacations, etc.) is generally not deductible. The combined mortgage and home equity debt limit for the deduction is $750,000. Consult a tax advisor for your specific situation.
What are current home equity loan rates?
Home equity loan rates are typically 1-2% higher than first mortgage rates because they are in second lien position (higher risk for the lender). Rates vary by credit score, loan-to-value ratio, and loan amount. Borrowers with excellent credit and low LTV ratios get the best rates. HELOC rates are usually variable and tied to the prime rate.
Can I lose my home if I default on a home equity loan?
Yes. A home equity loan uses your home as collateral, just like your primary mortgage. If you fail to make payments, the lender can foreclose. This is why it's critical to borrow only what you can comfortably repay. Never use a home equity loan for speculative investments or discretionary spending that puts your home at risk.