HELOC vs. home equity loan: which is better for you?
The short answer
A HELOC is a revolving credit line with a usually variable rate: you borrow what you need during a draw period, often 10 years, then repay over a set period, often 20 years. A home equity loan is a fixed-rate lump sum repaid in equal payments. Choose a HELOC for costs that come in stages or are uncertain, and a home equity loan when you need a known amount and want a predictable payment.
| HELOC | Home equity loan | |
|---|---|---|
| How you receive money | Draw as needed, up to your limit | All at once at closing |
| Rate | Usually variable (prime plus a margin) | Fixed |
| Payment | Can be interest-only during the draw period; rises in repayment | Same every month |
| Interest charged on | Only what you have drawn | The full loan from day one |
| Typical costs | Low; some lenders waive closing costs but may charge annual fees | Low to moderate closing costs |
| Best for | Renovations in phases, emergency backstop, tuition over several years | One-time costs, debt consolidation |
Watch the HELOC payment jump
If you pay interest only during the draw period, your payment can rise sharply when repayment begins. Example: $60,000 at 8% interest-only is $400 a month. Repaid over 20 years at the same rate, it becomes about $502 a month, and more if rates have risen.
Rate risk after the 2026 Fed increase
HELOC rates follow the prime rate, which rose after the Federal Reserve's September 2026 increase. Ask whether your lender offers a fixed-rate lock option on part of your balance. How the Fed hike affects HELOCs.
How much can you borrow?
Lenders usually cap total mortgage debt at 80% to 90% of your home's value. See the calculation.
Common questions
Can I pay off a HELOC early?
Usually yes. Some HELOCs charge an early closure fee if you close the line within the first few years, so check the terms.
Does a HELOC affect my credit score?
Opening one adds an inquiry and a new account. How much of the line you use can also affect your score, depending on the scoring model.