HELOC vs Home Equity Loan: Which Should You Choose?
Both are second mortgages secured by your home on top of the loan you already have. A home equity loan hands you one lump sum at a fixed rate with a fixed, fully amortizing payment; a HELOC gives you a credit line at a variable rate that you draw on as needed, usually with interest-only payments during the draw period and a higher principal-and-interest payment once repayment begins. Choose the loan when you know the amount and want the payment fixed; choose the line when the spending is spread over time or uncertain and you can carry a payment that moves with rates. The calculator below sizes the line a lender’s combined loan-to-value cap would allow on your home.
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Key Numbers
| Statistic | Value | Source |
|---|---|---|
| Home equity loan rate | Fixed for the life of the loan | CFPB, What is a home equity loan? |
| HELOC rate | Variable in most plans, set as an index plus a margin | CFPB, What is a home equity line of credit? |
| HELOC line can be frozen or reduced | Yes, by the lender, in the circumstances the plan sets out | CFPB, home equity line of credit brochure |
HELOC Calculator
Estimate the home equity line of credit you could qualify for from your home value, mortgage balance and the lender’s combined loan-to-value limit, plus the interest-only and repayment-period payments on the amount you draw.
- Current loan-to-value
- 58.2%
- Combined loan-to-value after the draw
- 69.1%
- Interest-only payment on the draw
- $425What many plans charge during the draw period, at the rate entered.
- Repayment-period payment (20 years)
- $521Principal and interest once draws end, if the rate stayed where it is.
Worked example with the starting figures above: available line of credit $147,000; current loan-to-value 58.2%; combined loan-to-value after the draw 69.1%; interest-only payment on the draw $425; repayment-period payment (20 years) $521. Rates are illustrative examples, not a quote. The full calculator page explains the math step by step.
Home Equity Line of Credit
An open-end credit line secured by your home. Draw what you need during the draw period, pay interest on what you have drawn, then repay the balance over the repayment period at a rate that moves with the market.
Home Equity Loan
A closed-end second mortgage. One lump sum at closing, a fixed rate, and the same principal-and-interest payment every month until it is paid off.
Side-by-Side Comparison
| Feature | HELOC | Home Equity Loan |
|---|---|---|
| How you get the money | Draw as needed during the draw period, often by check or transfer | One lump sum at closing |
| Rate | Variable: an index such as the prime rate plus a fixed margin; some plans offer an introductory rate | Fixed for the whole term |
| Payment | Often interest-only on the drawn balance during the draw period, then principal and interest; it changes when rates move and again when repayment starts | The same principal-and-interest payment every month |
| What you pay interest on | Only the balance you have drawn | The full amount from day one |
| Costs to open | Often low or no closing costs, sometimes with an annual fee or an early-closure fee | Closing costs like a small mortgage: appraisal, title, recording |
| Disclosures you receive | The CFPB HELOC brochure and the plan’s early disclosure; not a Loan Estimate, because a HELOC is open-end credit | A Loan Estimate within three business days and a Closing Disclosure before closing, like a first mortgage |
| Can the lender change the deal later | The line can be frozen or reduced in the circumstances the plan sets out, such as a fall in home value | No: the amount, rate and payment are fixed at closing |
When to Choose Each Option
Choose HELOC If:
- The spending is spread over time, such as a renovation paid in stages
- You may not use the full amount and do not want to pay interest on money sitting idle
- You want a reserve you can draw on later without reapplying
- You can carry a payment that rises with rates and again when the draw period ends
Choose Home Equity Loan If:
- You know the amount and want it all at once, such as paying off a higher-rate debt
- You want a fixed payment you can plan around for years
- You expect rates to be volatile and do not want that risk on a second lien
- You want the full Loan Estimate and Closing Disclosure paperwork to compare offers line by line
The Bottom Line
Match the product to the shape of the spending, not to the headline rate. A HELOC’s lower starting rate is a variable rate on money you may not even draw; a home equity loan’s higher fixed rate buys certainty on a sum you will definitely spend. Run the calculator for the line your equity supports, then compare the HELOC’s fully drawn repayment-period payment with the loan’s fixed payment for the same amount. Ralo is a mortgage broker, not a lender; it brokers HELOCs in the states where it is licensed and earns a thin commission from the lender you choose. Ask about a fixed-rate second mortgage as well; what is available depends on the lender panel and your state.
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