HELOC vs Home Equity Loan
Both HELOC and home equity loans are second mortgages that let you tap home equity without disturbing your first mortgage. The difference: HELOC is a revolving credit line with a draw period; home equity loan is a one-time lump sum with fixed payments. The right choice depends on whether you need flexible access over time or a fixed amount upfront.
HELOC (Home Equity Line of Credit)
Revolving credit line; draw what you need over a 10-year window.
Best for: Renovation projects with phased spending, ongoing cash flow needs, or borrowers who want flexibility.
Pros
- +Borrow only what you need; pay interest only on drawn balance
- +Interest-only payments during 10-year draw period
- +Lower closing costs than home equity loan
- +Reusable credit line as you pay down
Cons
- −Variable rate (Prime + margin) - rises with Fed rate hikes
- −Payment shock when draw period ends and amortization begins
- −Lender can freeze line if home value drops
Home Equity Loan
Lump sum disbursement; fixed payment over 5-30 years.
Best for: One-time large expenses (debt consolidation, single renovation project, big purchase) where fixed payment certainty matters.
Pros
- +Fixed rate - no surprise rate hikes
- +Fixed payment - predictable budgeting
- +Lump sum at closing
Cons
- −Interest from day one on full balance
- −Higher closing costs than HELOC
- −No flexibility once disbursed
| Field | HELOC (Home Equity Line of Credit) | Home Equity Loan |
|---|---|---|
| Min FICO | 660+ | 660+ |
| LTV (purchase) | N/A | N/A |
| LTV (cash-out) | Up to 80-90% combined LTV | Up to 80% combined LTV |
| Income docs | Standard | Standard |
| Term | 10-year draw / 20-year repay | 5-30 years |
| Time to close | 14-30 days | 21-30 days |
Which one should you choose?
- HELOC (Home Equity Line of Credit): choose HELOC for renovation projects with phased spending or ongoing cash needs. Lower closing cost and flexibility win.
- Home Equity Loan: choose home equity loan for a one-time large expense where you want fixed payment certainty.
- For debt consolidation, run both. HELOC variable rate may save initially; home equity loan fixed rate locks in certainty over 5-10 years.
Frequently asked questions
Can I have both a HELOC and home equity loan?
Possible but rare. Combined LTV caps apply (typically 80-85%). Most borrowers use one or the other based on use case.
Are HELOC and home equity loan interest tax deductible?
Only if used to "buy, build, or substantially improve" the home that secures the loan. Personal use, debt consolidation, or other purposes are NOT deductible.
Not sure which fits your scenario?
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Today's mortgage rates
Conventional
5.875%
5.906% APR
FHA
5.375%
5.405% APR
VA
5.375%
5.402% APR
Conv: 80% LTV, 780 FICO. FHA: 96.5% LTV, 680 FICO. VA: 100% LTV, 680 FICO. 30-yr fixed. Your rate may vary.