The key differences
The legal difference is that a home equity loan is closed-end credit and a HELOC is open-end credit. Under Regulation Z, open-end credit is a plan where the lender expects repeated transactions and the available credit is replenished as you repay; closed-end credit is everything else.[4] In practice, a home equity loan is a specific amount borrowed against your equity and paid out in a lump sum, while a HELOC works like a credit card: when you pay it down, your available credit comes back.[1]
| Home equity loan | HELOC | |
|---|---|---|
| Money paid out | All at once at closing | As you draw, up to the limit |
| Interest rate | Usually fixed, can be adjustable | Usually adjustable (index + margin) |
| Payments | Equal payments to payoff | Vary with balance and rate; often interest-only during the draw |
| Can you borrow again? | No, you need a new loan | Yes, during the draw period |
| APR shown to you | Includes points and other finance charges | Based on the interest rate alone |
| Right to cancel (home you live in) | 3 business days after closing | 3 business days after opening |
| Secured by your home | Yes | Yes |
The CFPB notes that a home equity loan usually has a fixed rate that will not change,[2] while HELOCs usually have adjustable rates and payments that vary with the outstanding balance.[1] The APRs are figured differently: a home equity loan's APR includes points and other finance charges, a HELOC's does not, so do not compare the two APRs directly.[3] Both carry a three-business-day right to cancel when your principal dwelling secures them.[5][6]
Payments and total interest on the same amount
A HELOC usually has the lower payment at first and a home equity loan the lower total cost, because an interest-only draw keeps the full balance outstanding for years. With the calculator's defaults, the loan costs $582.08 a month and $44,775 in interest over 15 years. The HELOC costs $387.50 a month for 10 years, then $492.57 for 20, and $104,717 in interest, or $135,086 if its rate averages 2 points higher.
Much of that gap is time, not rate. If you repay the HELOC on the same 15-year schedule, paying principal from the first month, the comparison is about rates alone:
| Rate | Monthly payment | Total interest | |
|---|---|---|---|
| Home equity loan | 8.25% fixed | $582.08 | $44,775 |
| HELOC, rate unchanged | 7.75% | $564.77 | $41,658 |
| HELOC, rate 2 points higher | 9.75% | $635.62 | $54,411 |
So the HELOC wins while its rate stays below the fixed rate and loses when it climbs above it. What you buy with a home equity loan is certainty: the payment cannot change.
Which one fits your situation
A home equity loan fits a known, one-time cost; a HELOC fits costs that arrive in stages or an amount you cannot pin down. The CFPB's booklet makes the same point: consider a second mortgage instead of a line if you need a set amount for a specific purpose, such as an addition to your home.[3]
- Choose the loan for a single bill with a firm price, when you want a payment that never changes, or when you expect rates to rise.
- Choose the line for a remodel paid in phases, tuition paid each term, or a reserve you may not fully use; you pay interest only on what you draw.
- Either way, the tax treatment is the same: interest on home equity loans and lines is deductible only if the money is used to buy, build or substantially improve the home that secures it.[8]
Size the project firstPrice the work with a cost estimator such as the kitchen remodel cost calculator, then compare a HELOC, a home equity loan and a personal loan for that amount in the home improvement loan calculator.
Worked example
- Amount: $60,000. Home equity loan at an example fixed rate of 8.25% for 15 years: $582.08 a month, $44,775 of interest.
- HELOC at prime 7.00% + 0.75 = 7.75%: $387.50 a month interest-only for 10 years, then $492.57.
- Break-even: the HELOC's lifetime interest matches the loan's only if its rate averages 3.519% over 30 years. Repaid over 15 years instead, it beats the loan at any rate below 8.25%.
Both products use the same equity, so the borrowing limit works the same way; check yours with the HELOC LTV calculator. To understand the line itself first, read what is a HELOC. Banks also sometimes make home equity loans in first-lien position, with payments that include taxes and insurance;[7] the first lien HELOC page covers lines that replace the mortgage.
Frequently asked questions
What is the main difference between a home equity loan and a HELOC?
A home equity loan gives you a lump sum, usually at a fixed rate with equal payments. A HELOC is a line you draw on as needed, usually at a variable rate, and your available credit is replenished as you repay.[1]
Is a home equity loan or HELOC better?
A home equity loan is better for a one-time cost and a predictable payment. A HELOC is better when you need money over time or are not sure how much. Run both in the calculator with the rates you are quoted.
Which has lower payments, a HELOC or a home equity loan?
Usually the HELOC at first, because the draw period is often interest-only: $387.50 vs. $582.08 a month on $60,000 in the example. Once the HELOC's repayment period starts, the comparison can flip.
Can I switch a HELOC to a fixed rate?
Sometimes. The CFPB's HELOC booklet notes that some lenders let you convert from a variable to a fixed rate during the plan, or convert all or part of the line to a fixed-term installment loan.[3] If yours does not, you can refinance the balance into a fixed-rate home equity loan. See can you refinance a HELOC.
Sources
- What is the difference between a home equity loan and a home equity line of credit (HELOC)?
- What is a home equity loan?
- What you should know about home equity lines of credit (booklet)
- Regulation Z § 1026.2, Definitions (open-end and closed-end credit)
- Regulation Z § 1026.15, Right of rescission (open-end credit)
- Regulation Z § 1026.23, Right of rescission (closed-end credit)
- Comptroller's Handbook: Residential Real Estate Lending (home equity lines and loans)
- Publication 936 (2025), Home Mortgage Interest Deduction