What is the difference between a home equity loan and a HELOC?

A home equity loan gives you a lump sum at a fixed interest rate with fixed monthly payments over a set term (5–15 years). A HELOC is a revolving credit line with a variable rate — you draw what you need during the draw period (usually 10 years) and then repay over a repayment period (usually 20 years). Home equity loans are better for one-time expenses; HELOCs are better for ongoing needs.

Which has a lower interest rate — home equity loan or HELOC?

HELOCs typically have lower initial rates than home equity loans because the rate is variable (tied to the prime rate). Home equity loans carry a small rate premium in exchange for rate certainty. However, if the Fed raises rates, your HELOC payment can increase significantly. In 2026, typical home equity loan rates are 8.5%–9.5%; HELOC rates start around 8.0%–9.0% but fluctuate.

How much can I borrow with a home equity loan or HELOC?

Most lenders allow combined LTV (your first mortgage plus the new loan) up to 80%–85% of the home's appraised value. For example, on a $500,000 home with a $300,000 mortgage, 85% LTV = $425,000 combined, meaning you could borrow up to $125,000 in a home equity product.

What happens if I only draw part of my HELOC?

You only pay interest on the amount you actually draw, not the full credit limit. If your HELOC limit is $100,000 and you draw $40,000, you pay interest only on $40,000. This flexibility makes HELOCs efficient for projects where costs are uncertain or phased over time — like a home renovation.

Can I pay off a HELOC early?

Yes, most HELOCs allow prepayment without penalty. Paying down the balance during the draw period reduces interest costs and frees up the credit line for future draws. Some HELOCs have a small early closure fee if you close the line within the first 2–3 years.

Home Equity Loan vs HELOC Calculator

Compare the total cost, monthly payments, and flexibility of a fixed home equity loan versus a variable-rate HELOC — side by side, for your exact numbers.

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HELOC

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Home Equity Loan vs HELOC: Key Differences

Both products let you borrow against the equity in your home at lower interest rates than personal loans or credit cards. The right choice depends on how you need the money and your tolerance for rate risk.

A home equity loan gives you a single lump sum disbursed at closing, with a fixed interest rate and fixed monthly payments for a set term — typically 5 to 15 years. The payment never changes. A HELOC (home equity line of credit) works like a credit card secured by your home: you draw what you need, when you need it, up to your credit limit. During the draw period (usually 10 years), you typically make interest-only payments. After that, the remaining balance amortizes over a repayment period (usually 20 years).

Side-by-Side Feature Comparison

Feature	Home Equity Loan	HELOC
Disbursement	Lump sum at closing	Draw as needed
Interest rate	Fixed	Variable (prime + margin)
Monthly payment	Fixed P&I	Interest-only (draw); P&I (repay)
Typical rate (2026)	8.5%–9.5%	8.0%–9.0% initial
Best for	One-time expense (renovation, debt payoff)	Ongoing needs (staged projects, emergency fund)
Rate risk	None (fixed)	Rises if prime rate increases

How Much Can You Borrow?

Lenders typically cap the combined loan-to-value (CLTV) at 80%–85% of the home's appraised value. CLTV = (first mortgage + home equity product) ÷ home value. If your home is worth $500,000 and you owe $300,000, your 85% CLTV limit is $425,000 — meaning you can access up to $125,000 through a home equity product. The higher your CLTV, the higher the rate offered.

Tax Deductibility

Since the Tax Cuts and Jobs Act of 2017, interest on home equity loans and HELOCs is deductible only when the proceeds are used to buy, build, or substantially improve the home securing the loan. If you use the funds to pay off credit cards, fund a vacation, or cover other expenses, the interest is not deductible. Consult a tax advisor for your specific situation.

The HELOC "payment shock" risk. During the draw period, your payments are interest-only — so a $100,000 HELOC at 8.5% costs only $708/month. When repayment begins, that same balance amortized over 20 years at the same rate costs $868/month — a 22% increase before considering any rate changes. Model both periods before choosing a HELOC for a large balance.

Before tapping home equity, make sure you've explored whether PMI can be removed first — that monthly savings may reduce how much you need to borrow. The PMI removal guide walks through all four removal paths. And if you're in a high-value market with a large first mortgage, the jumbo loan guide explains how loan size affects your available home equity rates.

Frequently Asked Questions

Which is better — a home equity loan or a HELOC?

For a one-time, known expense (kitchen renovation, debt consolidation), a home equity loan is better — fixed payment, no rate risk. For ongoing or uncertain costs (multi-phase project, emergency access), a HELOC is better — you only pay interest on what you actually draw. If you're uncertain about the total amount needed, a HELOC's flexibility usually wins.

What is a typical HELOC rate in 2026?

HELOC rates are variable, tied to the prime rate plus a lender margin (typically 0%–2%). In 2026, with the prime rate around 7.50%, HELOCs range from approximately 7.75%–9.50% depending on your credit score and CLTV. Rates can change monthly as the prime rate moves.

Is interest on a home equity loan or HELOC tax deductible?

Only if the proceeds are used to buy, build, or substantially improve the home securing the loan (per the Tax Cuts and Jobs Act of 2017). Using funds for debt consolidation, vacations, or other expenses is not deductible. This rule applies through at least 2025 and may be extended.

How much can I borrow with a HELOC or home equity loan?

Most lenders cap combined LTV (first mortgage + home equity product) at 80%–85% of the home's value. On a $500,000 home with a $300,000 mortgage, at 85% CLTV you can borrow up to $125,000. Higher CLTVs get higher rates. Credit score below 700 often reduces the maximum to 80% CLTV.

Can I convert a HELOC to a fixed-rate home equity loan?

Some lenders offer a "fixed-rate lock" feature that converts all or part of your HELOC balance to a fixed-rate installment loan within the same line of credit. This gives you rate certainty without closing costs. Not all HELOC products offer this — check with your lender before opening the line.

What happens to my HELOC if home values drop?

If home values decline significantly, your lender can reduce or freeze your HELOC credit limit — even if you've already been approved for the full amount. This is legal under standard HELOC agreements. During the 2008 crisis, many lenders froze or reduced lines when LTV rose above their thresholds. This risk is lower with home equity loans, which are fully funded at closing.

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