Home equity loan vs. HELOC compared

Pick this when you know the exact amount you need. A kitchen renovation with a contractor bid, a debt consolidation with a clear total, or a one-time major expense — these all fit the lump-sum model.

You get a fixed rate (typically 7-10% in the current market), a fixed term (5-30 years), and a predictable monthly payment. No surprises if interest rates move up after you close.

Pick this when your borrowing needs are spread over time. A multi-phase renovation, ongoing education costs, or a financial safety net you hope you won't fully use. You only pay interest on what you actually draw.

Most HELOCs have a 5-10 year draw period where you can borrow and repay flexibly, followed by a 10-20 year repayment period. Current variable rates start around 8-9% but can rise with the market.

Both products involve closing costs of 2-5% of the loan amount — appraisal, title search, attorney fees, and origination charges. Some lenders waive closing costs but charge a higher rate. Factor these into your total cost comparison.

Home equity loan rates are currently 7-10% fixed. HELOC rates start around 8-9% variable but can fluctuate. Both offer potential tax deductions on interest if you use the funds for home improvement (consult a tax advisor for your situation).

Your home is the collateral. If you default on either product, the lender can foreclose. This is fundamentally different from unsecured debt like credit cards or personal loans.

This risk changes the calculation when borrowing for non-essential purposes. Using equity for a home renovation that increases your property value is different from using it to fund a vacation or cover consumer spending. Only borrow what you can confidently repay on your current income.

Take our 2-minute home equity quiz to see which product matches your situation. We'll ask about your borrowing purpose, timeline, and risk tolerance, then show you relevant options from lenders in your area.