Home Equity Loan vs HELOC: Fixed Lump Sum or Credit Line?
A home equity loan and a home equity line of credit (HELOC) both borrow against the equity in your home, and both use the home as collateral: if you cannot repay, you could lose it. The difference is how the money arrives and how the payment behaves. A home equity loan pays you once and usually has a fixed rate. A HELOC is a line you draw from over years, usually at a variable rate, with a payment that can jump when the draw period ends. That makes one a better fit for a single known bill and the other for costs that arrive over time.
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Key takeaways
- The CFPB: with a home equity loan "you receive the money you are borrowing in a lump sum payment," while with a HELOC "you can borrow or draw money multiple times from an available maximum amount."
- A home equity loan "usually has a fixed interest rate," per the CFPB. HELOCs "usually have adjustable interest rates."
- If you already have a mortgage, the CFPB says either one is a second mortgage "that you'd need to pay in addition to your first mortgage."
- In our illustration, an interest-only HELOC costs more than twice the interest of a 15-year home equity loan on the same $40,000, because the balance does not shrink for 10 years and is then repaid over 20 more.
How do they compare side by side?
| Factor | Home equity loan | HELOC |
|---|---|---|
| How you receive money | One lump sum | Draws as needed, up to a limit, during the draw period (10 years in the CFPB's example) |
| Rate | Usually fixed, per the CFPB; some are adjustable | Usually variable, per the CFPB; some plans let you convert part of the balance to a fixed rate, which the CFPB says is usually higher |
| Payment | Same amount each month on a fixed-rate loan | Changes with the rate and the balance; the CFPB says payments "are often significantly higher" once repayment starts |
| You pay interest on | The full amount from day one | Only what you have drawn |
| Typical fees | Upfront fees and costs, per the CFPB | Application, origination, appraisal, title and other closing fees; some plans add annual, inactivity, cancellation or conversion fees |
| Can the lender stop further borrowing? | Not applicable; you already have the money | Yes, in limited cases such as a significant drop in your home's value (12 CFR 1026.40(f)(3)(vi)) |
| Right to cancel | 3 business days on a loan secured by your principal dwelling (12 CFR 1026.23) | 3 business days on a plan secured by your principal dwelling (12 CFR 1026.15) |
| Home at risk if you cannot pay | Yes. The CFPB: "the lender could foreclose on your home" | Yes. The CFPB: "you could lose your home" |
The line-freeze row matters if your project depends on future draws. Regulation Z lets a lender prohibit additional draws or reduce your limit if your home's value "declines significantly," if it "reasonably believes" you cannot repay because of a material change in your finances, or if you default on a material obligation. A half-finished renovation with a frozen line is a real failure mode. The full list of risks is in can you lose your home over a HELOC.
What does the payment look like over time? A worked illustration
This is an illustration with hypothetical rates, not an offer or a quote. Taxes and homeowners insurance are not included in any payment shown. Interest and payments are rounded half-up to the cent each month.
Assumptions. You borrow $40,000.
- Home equity loan: $40,000 at a hypothetical 8.50% fixed interest rate and APR (no finance charges assumed), 15-year term. Every payment: 179 payments of $393.90 and a final payment of $392.42. Total interest: $30,900.52.
- HELOC, minimum payments: $40,000 drawn at once at a hypothetical 8.00% variable APR (the bank prime rate was 7.00% on October 22, 2026, per the Federal Reserve, plus an assumed 1.00-point margin). 10-year interest-only draw period, then 20-year repayment. Every payment, if the rate never changes: 120 interest-only payments of $266.67, then 239 payments of $334.58 and a final payment of $332.45. Total interest: $72,297.47. Hypothetical maximum rate (cap) under the plan: 18.00% APR; hypothetical fees to open the plan: $0. The rate is variable, so these payments change when the rate changes. If the rate were 10.00% during repayment, the repayment-period payment would be $386.01.
- HELOC, paid like a loan: the same 8.00% HELOC, but you pay it off over 15 years from the start. Every payment, if the rate never changes: 179 payments of $382.26 and a final payment of $382.56. Total interest: $28,807.10. Same hypothetical 18.00% APR cap and $0 fees to open.
| Option | Payment in years 1 to 10 | Payment after year 10 | Total interest | Rate |
|---|---|---|---|---|
| Home equity loan, 15 years | $393.90 | $393.90 until year 15 | $30,900.52 | Fixed (hypothetical 8.50%) |
| HELOC, interest-only then 20-year repayment | $266.67 | $334.58 until year 30 | $72,297.47 | Variable (hypothetical 8.00%) |
| HELOC, repaid over 15 years | $382.26 | $382.26 until year 15 | $28,807.10 | Variable (hypothetical 8.00%) |
Figure: Home equity loan at a hypothetical 8.50% fixed for 15 years; HELOC at a hypothetical 8.00% variable, interest-only for 10 years, then repaid over 20 years. Payments assume the HELOC rate never changes.
What the numbers show:
- The low HELOC payment is the expensive one. Interest-only payments of $266.67 leave all $40,000 owed after 10 years, and total interest reaches $72,297.47, more than twice the home equity loan.
- Structure matters more than the rate. Paid down over 15 years, the same HELOC costs $28,807.10 in interest, slightly less than the fixed loan, but only if its variable rate stays put.
- The jump is built in. On minimum payments, the HELOC payment rises from $266.67 to $334.58 when repayment starts, and higher if rates have risen by then. What to do when that date nears is covered in HELOC draw period ending.
Which one fits your situation?
A home equity loan tends to fit a single, known cost: a roof replacement, a fixed contractor bid, or paying off a specific debt. You get a predictable payment and a known end date. You pay interest on the full amount from the start, so do not borrow more than the bill.
A HELOC tends to fit costs that arrive in stages or are uncertain: a renovation paid in phases, tuition paid each semester, or a reserve you may not use. You pay interest only on what you draw. In exchange you take on rate risk, the payment jump at repayment, and the chance that the lender freezes the line.
Neither may fit if your income is unstable or the money is for card debt you could repay another way. The CFPB suggests that anyone considering a home equity loan to pay off debts "explore alternatives with a credit counselor that do not potentially put your home at the risk of a forced sale." Our page on using a HELOC to consolidate credit card debt runs those numbers, and home improvement loan vs HELOC compares a HELOC with an unsecured loan for a project.
If you are also weighing replacing your first mortgage instead, see HELOC vs cash-out refinance.
Is the interest deductible?
Possibly, for either product, on the same test. IRS Publication 936 says interest on home equity loans and lines of credit is deductible only if the borrowed funds are used to "buy, build, or substantially improve" the home that secures the loan, and only if you itemize. Qualifying debt is limited to $750,000 of combined mortgage debt ($375,000 if married filing separately) for debt taken on after December 15, 2017. Money spent on anything else does not qualify.
How do you compare offers?
- Compare the APR and every fee, not only the monthly payment. The CFPB notes home equity loans "may have upfront fees and costs."
- For a HELOC, ask for the index, the margin, the maximum rate (the cap), the length of the draw and repayment periods, any minimum draw, and any fee for closing the line early.
- Ask whether the HELOC offers a fixed-rate conversion option, and its fee.
- Get estimates from more than one lender. How one marketplace routes your request to lenders is described in our LendingTree home equity review.
Before you apply: a home equity loan and a HELOC are both secured by your home. If you cannot repay, you could lose your home. No lender can promise approval, a rate or a payment. Loans Generator may be paid through an affiliate network when you click or submit a request through the link below; this does not change what we report.
Common questions
Is a HELOC or a home equity loan better?
Neither in general. A home equity loan suits one known cost and a borrower who wants a fixed payment. A HELOC suits costs spread over time and a borrower who can handle a variable rate and a later payment increase.
Is a HELOAN the same as a home equity loan?
Yes. HELOAN and HEL are both short names for a home equity loan, a lump-sum loan secured by your home.
Can I have both a HELOC and a home equity loan?
Some lenders allow it if your combined loan-to-value stays within their limit. Each one is another lien on the home, and each adds a payment.
Can a lender freeze my HELOC but not my home equity loan?
A home equity loan is paid out in full at closing, so there is nothing to freeze. A HELOC can be frozen or reduced in the situations Regulation Z allows, such as a significant decline in your home's value.
Can I cancel after closing?
Regulation Z gives you until midnight of the third business day to rescind a home equity loan or HELOC secured by your principal dwelling. Business days for this purpose include Saturdays (12 CFR 1026.2(a)(6)).
Sources
- Consumer Financial Protection Bureau, "What is the difference between a Home Equity Loan and a Home Equity Line of Credit (HELOC)?", last reviewed August 28, 2026, accessed October 26, 2026.
- Consumer Financial Protection Bureau, "What is a home equity loan?", last reviewed September 11, 2024, accessed October 26, 2026.
- Consumer Financial Protection Bureau, "What is a home equity line of credit (HELOC)?", last reviewed August 28, 2026, accessed October 26, 2026.
- Consumer Financial Protection Bureau, "What fees can my lender charge if I take out a HELOC?", accessed October 26, 2026.
- Consumer Financial Protection Bureau, Regulation Z, 12 CFR 1026.2(a)(6), 1026.40, 1026.15 and 1026.23, accessed October 26, 2026.
- Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates, release of October 23, 2026, accessed October 26, 2026.
- Internal Revenue Service, Publication 936 (2025), accessed October 26, 2026.
- Consumer Financial Protection Bureau, “Regulation Z, 12 CFR 1026.40 Requirements for home equity plans”
- Consumer Financial Protection Bureau, “Regulation Z, 12 CFR 1026.2(a)(6) Business day”
- Consumer Financial Protection Bureau, “Regulation Z, 12 CFR 1026.15 Right of rescission (open-end credit)”
- Consumer Financial Protection Bureau, “Regulation Z, 12 CFR 1026.23 Right of rescission (closed-end credit)”
- Board of Governors of the Federal Reserve System, “H.15 Selected Interest Rates (Daily), October 23, 2026”
- Internal Revenue Service, “Publication 936 (2025), Home Mortgage Interest Deduction”
Loans Generator is not a lender or mortgage broker. Rates in this page's examples are hypothetical illustrations, not offers. No lender can guarantee approval, a rate or a payment. Rules cited here were checked on October 26, 2026 and change without notice. Availability and terms vary by lender and by state. This page is general information, not legal, tax, or financial advice.