Home Equity Loan vs HELOC: Which One Fits

A home-equity loan and a HELOC both turn the equity in your home into borrowing power, and both sit as a second lien behind your mortgage. The difference is in how you receive and repay the money.

Home-equity loan

This is a lump sum paid out at closing, with a fixed interest rate and a fixed monthly payment over a set term. It behaves like a second mortgage, which makes it predictable — ideal when you know exactly how much you need, such as a single large renovation or a debt consolidation.

HELOC

A home-equity line of credit works more like a credit card secured by your home. During a draw period you borrow only what you need, up to a limit, usually at a variable rate; after that comes a repayment period. It suits ongoing or uncertain costs — a phased project, or a cushion you may not fully use.

How to decide

• Known, one-time cost and you want a stable payment — lean toward the fixed home-equity loan.
• Uncertain or staged spending, and you want to pay interest only on what you draw — a HELOC fits better.
• Either way, your available equity and loan-to-value ratio set how much you can borrow.

See how much you could borrow and what it would cost with the calculators below.