A Home Equity Line of Credit (HELOC) and a Home Equity Loan both let you borrow against the equity in your home, but they behave like completely different products. Choosing the wrong one can add thousands in interest — or leave you with a payment that jumps unexpectedly.
The one-line difference
A HELOC is a revolving credit line with a variable interest rate — think of a credit card secured by your house. A home equity loan is a fixed-rate, lump-sum second mortgage — you get all the money on day one and repay it in equal monthly installments.
Interest rate: variable vs fixed
HELOC APRs are tied to the Prime Rate plus a margin. If the Federal Reserve raises rates, your HELOC payment goes up the following month. Home equity loan APRs are fixed at closing — the rate and payment never change for the full term (typically 5 to 30 years).
In a rising-rate environment, a home equity loan protects you. In a falling-rate environment, a HELOC lets you benefit without refinancing.
Fund access: revolving vs lump sum
- HELOC: You get a credit limit (say, $75,000) and can draw any amount during the "draw period" (usually 10 years). You only pay interest on what you draw. When you repay principal, that credit becomes available again.
- Home equity loan: You get the full amount at closing in a single wire. You cannot re-borrow paid-down principal without a new loan.
Repayment structure
- HELOC: Interest-only payments during the 10-year draw period, then a 10- to 20-year repayment period where principal + interest is amortized. The switch from interest-only to full amortization often doubles or triples the monthly payment — this is the "payment shock" HELOC borrowers get caught by.
- Home equity loan: Equal principal + interest payments from month one, fully amortized over the term. Predictable and boring, which is the point.
When a HELOC wins
- You need funds over time (multi-year home renovation, tuition paid semester by semester).
- You want the option to borrow but not the obligation.
- You expect rates to stay flat or fall.
- You have the discipline to pay down principal during the draw period.
When a home equity loan wins
- You need a single lump sum (debt consolidation, one large project, buying out a co-owner).
- You want a fixed monthly payment you can budget around.
- You expect rates to rise.
- You want to lock in today's rate for the full term.
Rates, fees, and closing costs
Both products typically require an appraisal, title work, and 2%–5% in closing costs. HELOCs sometimes waive closing costs but add an annual fee and an early-termination fee if you close the line within 3 years. Home equity loans usually roll closing costs into the loan.
Combined loan-to-value (CLTV) caps are usually 80%–85% for both — meaning your first mortgage plus the HELOC or home equity loan can't exceed 80%–85% of the home's appraised value.
Tax treatment
Interest on either product is only tax-deductible if the funds are used to "buy, build, or substantially improve" the home securing the loan (IRS rules under the 2017 TCJA, in effect through 2025). Using a HELOC to pay off credit cards or fund a car does not qualify for the deduction.
The bottom line
Choose a HELOC when you need flexible access to funds over time and can handle a variable payment. Choose a home equity loan when you need a fixed lump sum and want the certainty of a locked-in rate and payment. If you're consolidating debt or funding a one-time expense, the home equity loan is almost always the safer pick.