Homeowners often use their property’s equity to access cash for major expenses.
Two popular options are:
- Home Equity Loans
- HELOC (Home Equity Line of Credit)
But which one is better — and which saves more money?
Let’s compare clearly.
What Is a Home Equity Loan?
A home equity loan is a lump sum loan secured by your home.
Key features:
✅ Fixed interest rate
✅ Fixed monthly payments
✅ Lump sum payout
✅ Long repayment term
It works like a second mortgage.
What Is a HELOC?
A HELOC is a revolving credit line secured by your home.
Key features:
✅ Flexible withdrawals
✅ Variable interest rate
✅ Draw period + repayment period
✅ Interest paid only on borrowed amount
HELOC works more like a credit card backed by your property.
Key Differences: Home Equity Loan vs HELOC
| Feature | Home Equity Loan | HELOC |
|---|---|---|
| Payment Type | Lump sum | Credit line |
| Interest Rate | Fixed | Usually variable |
| Monthly Payment | Fixed | Can change |
| Flexibility | Low | High |
| Risk | Predictable | Rate fluctuation risk |
Which Option Saves You More Money?
✅ Choose Home Equity Loan If:
- You need a fixed amount
- You prefer stable payments
- Interest rates are rising
- You want predictable budgeting
✅ Choose HELOC If:
- You need money gradually
- You want flexibility
- Interest rates are expected to drop
- You plan short-term borrowing
If you’re considering other financing options before using home equity, check: Best Personal Loans in 2026
Sometimes unsecured loans may be safer than risking your home.
Interest Rates in 2026
Typical rates:
Home Equity Loan:
- 6% – 10% (fixed depending on credit)
HELOC:
- Variable — often tied to prime rate
- May start lower but increase over time
Rates depend on:
- Credit score
- Loan-to-value ratio (LTV)
- Income stability
How Much Can You Borrow?
Most lenders allow:
- Up to 80%–90% of home value
- Minus existing mortgage balance
Example:
Home value = $400,000
Mortgage owed = $250,000
Available equity = $150,000
Possible borrowing limit = Percentage of equity approved by lender
Risks of Using Home Equity
⚠ Your home is collateral
⚠ Default may lead to foreclosure
⚠ Variable rates can increase payments (HELOC risk)
Borrow carefully.
If you already have high-interest debt, consolidation may be another option: Best Debt Consolidation Loans to Lower Monthly Payments
When Home Equity Financing Makes Sense
Best uses:
- Home renovations
- Large medical bills
- Education expenses
- Debt consolidation
- Investment opportunities
Avoid using home equity for:
❌ Vacations
❌ Luxury purchases
❌ Short-term lifestyle spending
Requirements to Qualify
Lenders usually require:
- Credit score 620+
- Stable income
- Low debt-to-income ratio
- Minimum equity (15%–20%)
Stronger credit = better rates.
If you’re exploring broader property financing options, you can also compare: Mortgage Loans Explained
Frequently Asked Questions
Is a HELOC better than a home equity loan?
It depends on your financial goal and risk tolerance.
Which has lower interest?
Home equity loans often offer fixed lower-risk rates.
Can I pay off early?
Usually yes — but check for prepayment penalties.
Final Conclusion
Home equity loans provide stability with fixed payments.
HELOC provides flexibility but carries interest rate risk.
The best option depends on:
- Your financial plan
- Market conditions
- Borrowing purpose
Choose carefully — your home is at stake.