HELOC vs. home equity loan: Which is better for you?
As you pay down your mortgage or your home grows in value, you gain equity. Your home’s equity is the difference between your home’s value and what you owe on your mortgage — it represents the portion of your home that you actually own. Having more equity means more profits once you sell your home, and it also gives you something to borrow against if you need cash.
Two popular options for doing this are home equity lines of credit (HELOCs) and home equity loans. However, while both let you tap into your equity, they aren’t one and the same.
Here’s what to know about HELOCs vs. home equity loans — and when one might be a better option than the other.
HELOC vs. home equity loan
Home equity loans and HELOCs have some key differences. For one, home equity loans provide a one-time, lump-sum payment, while HELOCs offer a credit line you can pull from over time. Home equity loans also tend to have fixed rates, while HELOC interest rates are usually variable.
Here’s how HELOCs vs. home equity loans compare:
| HELOCs | Home equity loans | |
|---|---|---|
| Payout | Revolving credit line you can withdraw from as needed (during the draw period) | One-time lump sum |
| Interest rate | Usually variable | Usually fixed |
| Term | Typically a 10-year draw period with a 20-year repayment period (depending on the lender) | 5 to 30 years |
| Repayment | Interest payments might be required during the draw period Full principal and interest payments start when you enter the repayment period | Full principal and interest payments due at the start of the loan |
| Interest accrual | Interest accrues only on the money you actually withdraw (not the full credit line amount) | Interest accrues on the full balance from the start |
HELOC vs. home equity loan: Which is better?
| If you… | Consider a… |
|---|---|
| Want predictable monthly payments | Home equity loan |
| Want access to cash for an extended period of time | HELOC |
| Aren’t sure how much money you need | HELOC |
| Are prone to overspending | Home equity loan |
| Want to minimize the interest you pay | HELOC |
| Know exactly how much you need to borrow | Home equity loan |
Generally speaking, a HELOC is likely going to be your best bet if you:
- Aren’t sure how much money you need or need funds on a repeated basis
- Want to pay interest only on the funds you actually borrow
- Need a financial safety net or access to cash for a long period
In comparison, home equity loans are typically better if you:
- Are looking for fixed, stable payments
- Know exactly how much money you need to borrow
- Are worried about overspending
Home equity loans
Best for: Fixed monthly payments and those prone to overspending
Home equity loans provide a one-time, lump-sum payment, which you get after closing and can use for almost anything you’d like. They usually have fixed interest rates, so your monthly payment will remain the same for the life of the loan. Repayment terms can range from five to 30 years, depending on the lender.
Pros and cons
Pros
- Fixed interest rates
- Predictable monthly payments
- Lump sum you can use for any purpose
Cons
- Uses your home as collateral, so you risk foreclosure if you can’t make your payments
- Must take out another loan if you need more funds
- Interest accrues on the full balance from the start of the loan
Find out: Is a home equity loan a good idea?
Home equity lines of credit
Best for: Long-term financing needs or unknown costs
HELOCs provide a revolving credit line, which works much like a credit card. You can withdraw money from your credit line as often as you’d like throughout the draw period, which typically lasts for 10 years. Depending on the lender, you might be required to make interest payments during the draw period.
After this, you’ll enter the repayment period and start repaying the loan in full.
Pros and cons
Pros
- Allows you to borrow money for an extended period
- Interest only accrues on the amount you withdraw
- You may only pay interest during the draw period
Cons
- Uses your home as collateral, so you risk foreclosure if you can’t make your payments
- Usually have variable rates, so your payments can fluctuate
- Might be tempting to overspend
Find out: Is a HELOC a good idea?
HELOC and home equity loan requirements
Home equity loan and HELOC requirements are typically very similar, though they can vary depending on the mortgage lender you choose.
Generally speaking, you’ll need to meet the following requirements for a home equity loan or HELOC:
- Decent credit score: You’ll typically need a minimum credit score of 620 to 680, depending on the lender.
- Low debt-to-income (DTI) ratio: Your DTI ratio compares your income to your monthly debt payments. You’ll usually need a DTI no higher than 40% to 50% — meaning your total monthly debt payments account for 40% to 50% or less of your monthly income.
- Sufficient equity: Depending on the lender, you’ll usually need at least 15% to 20% equity in your home.
- Maximum loan-to-value (LTV) ratio: Your LTV ratio compares the appraised value of your property to the amount you’re financing. Depending on your lender and credit, you can typically borrow between 80% to 90% of your home’s total value, minus your current mortgage balance.
- Appraisal: Most lenders require a home appraisal to determine your property’s value (and how much equity you have).
Risks of borrowing against your home equity
The main risk of borrowing against your home equity — whether it’s with a HELOC or a home equity loan — is that your home is used as collateral. This means if you fail to make your payments, the lender can foreclose on your house.
Going underwater on your mortgage is a real risk, too. This is when you owe more on your home than it’s worth, and it can happen if your home loses value. In this situation, selling your home wouldn’t pay off your mortgage balance.
HELOC vs. home equity loan FAQs
The main difference is that with a $50,000 home equity loan, you’ll get that $50,000 as a lump-sum payment. With a $50,000 HELOC, you can withdraw from the $50,000 credit line as needed over time.
Home equity loans also typically have fixed interest rates, so your payments won’t ever change. HELOCs, on the other hand, have variable rates — meaning your rate and payment can fluctuate.
Home equity loan and HELOC rates vary by lender as well as your credit score and other factors. As of July 8, 2026, the national average rate for a home equity loan was 8.08%, while the national average rate for a HELOC was 7.43%, according to Bankrate data.
Yes, it’s possible to have both a home equity loan and a HELOC. However, lenders will typically limit you to borrowing no more than 80% to 90% of your home’s total value, minus your mortgage balance and any other loans on the property. This is known as your combined-loan-to-value (CLTV) ratio.
If taking on another HELOC or home equity loan would push you beyond a lender’s maximum accepted CLTV ratio, you generally won’t qualify.
