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You own a home. You need cash. Two options come up: a HELOC and a home equity loan. Which one is right for you?
They work differently. The right choice depends on your goal.
What Is a HELOC?
A HELOC stands for Home Equity Line of Credit. It works like a credit card. You get a credit limit. You borrow what you need, when you need it. You only pay interest on what you use.
Most HELOCs have a draw period of 10 years. During that time, you can borrow and repay as needed. After the draw period ends, you enter repayment. You can no longer borrow.
HELOC rates are variable. They move with the prime rate. When rates go up, your payment goes up.
What Is a Home Equity Loan?
A home equity loan gives you a lump sum. You borrow one amount. You get it all at once. You repay it over a fixed term — usually 5 to 30 years.
The rate is fixed. Your payment stays the same every month. That makes it easier to budget.
HELOC vs Home Equity Loan: Key Differences
| Feature | HELOC | Home Equity Loan |
|---|---|---|
| Rate type | Variable | Fixed |
| How you get funds | Draw as needed | Lump sum |
| Repayment | Interest-only during draw, then full | Fixed monthly from day one |
| Best for | Ongoing projects, emergencies | One-time expenses, debt consolidation |
| Typical rates (May 2026) | 8.00% – 10.50% | 8.25% – 10.75% |
Rates as of May 2026. Rates vary by lender, credit score, and LTV.
When a HELOC Makes More Sense
A HELOC is better if:
- You are doing a home renovation in phases
- You want a financial safety net you can tap if needed
- You expect to repay fast and want flexibility
- You think interest rates will fall
When a Home Equity Loan Makes More Sense
A home equity loan is better if:
- You need a set amount for one expense (medical bills, debt payoff, tuition)
- You want a predictable monthly payment
- You are worried about rising rates
Tax Deductibility
Interest on both HELOCs and home equity loans may be tax deductible. But only if you use the funds to buy, build, or substantially improve your home. Using the money for personal expenses (vacations, cars) removes the deduction. Ask a tax advisor about your situation.
What You Need to Qualify
Most lenders want:
- At least 15% to 20% equity in your home
- A credit score of 620 or higher (700+ for best rates)
- A debt-to-income ratio under 43%
- Proof of stable income
Check your debt-to-income ratio before you apply. Lenders look at this closely.
How Much Can You Borrow?
Most lenders let you borrow up to 80% to 85% of your home’s value, minus what you owe. For example: if your home is worth $400,000 and you owe $250,000, you have $150,000 in equity. At 80% combined loan-to-value (CLTV), you could borrow up to $70,000.
Use our home affordability calculator to understand your equity position better.
Bottom Line
HELOCs give you flexibility. Home equity loans give you stability. If you need money for a long renovation or want a backup line of credit, go with a HELOC. If you need a fixed amount and want predictable payments, a home equity loan is the safer choice.
Either way, you are borrowing against your home. Only take what you can repay.
Frequently Asked Questions
Is a HELOC or home equity loan easier to get?
Both have similar requirements. You need equity, decent credit, and steady income. HELOCs may have slightly more flexible income requirements at some lenders.
Can I get both a HELOC and a home equity loan?
Yes, but your combined borrowing cannot exceed your lender’s CLTV limit (usually 80%–85%). Having both is uncommon and adds complexity.
What happens if I can’t repay a HELOC?
Your lender can foreclose. Both HELOCs and home equity loans are secured by your home. Always borrow only what you can afford to repay.
Do HELOCs have closing costs?
Some do, some don’t. Many online lenders offer no-closing-cost HELOCs. Review all fees before signing. See our guide to closing costs for more context on real estate financing fees.
How long does it take to get a HELOC?
Usually 2 to 6 weeks. Some online lenders are faster. The process includes an appraisal, underwriting, and title work.