HELOC vs. Home Equity Loan: Which Is Better?
🇩🇪 Diesen Artikel auf Deutsch lesenA home equity loan gives you a lump sum at a fixed rate with fixed payments — good for a single, known expense. A HELOC works like a credit line with a usually variable rate, letting you borrow as needed during a draw period — good for ongoing projects. Both use your home as collateral, so missing payments can put your home at risk.
If you've built up equity in your home, you can borrow against it — often at lower rates than unsecured loans. The two main options suit different needs.
Side by side
| Home equity loan | HELOC | |
|---|---|---|
| Payout | Lump sum | Borrow as needed up to a limit |
| Rate | Usually fixed | Usually variable |
| Payments | Fixed principal and interest | Often interest-only during the draw period, then higher |
| Best for | One known expense, such as a new roof | Projects in stages, uncertain costs |
How much can you borrow?
Lenders typically allow a combined loan-to-value of around 80–85%: your mortgage plus the new loan divided by your home's value. On a $400,000 home with a $250,000 mortgage, 85% CLTV allows up to about $90,000 in total borrowing.
Compare the payment
Loan Payment CalculatorMonthly payment and total interestTry the calculator →Risks to understand
- Your home is collateral. Default can lead to foreclosure.
- Variable HELOC rates can rise, increasing payments.
- Payment shock: when a HELOC's draw period ends, payments can jump as principal repayment begins.
- Closing costs and fees vary; ask for a full cost breakdown.
Frequently asked questions
Is home equity interest tax-deductible?
In some cases, if the money is used to buy, build or substantially improve the home that secures the loan. Ask a tax professional about your situation.
Can I pay off a HELOC early?
Usually yes, but some lenders charge early closure fees within the first few years.