Homeowners exploring ways to borrow against their property's equity may encounter two products: a Home Equity Line of Credit (HELOC) and a Home Equity Loan. Both are secured by the home, but they generally provide funds and require repayment in different ways.
Understanding those differences can help with a comparison of estimated borrowing costs, payment obligations, fees and risks. With either product, missed payments can put the home at risk of foreclosure.
The HELOC vs. Home Equity Loan Calculator compares illustrative monthly payments and interest costs using the figures and assumptions you enter. It does not predict lender offers.
What Is a Home Equity Loan?
Often called a "second mortgage," a home equity loan typically provides an agreed lump sum upfront. Many have a fixed interest rate and scheduled principal-and-interest payments, although terms and fees vary by lender.
One common feature: a fixed interest rate can make scheduled principal-and-interest payments more predictable. Review the agreement for the term, fees, late-payment provisions and any other charges.
What Is a HELOC?
A HELOC is a revolving line of credit secured by the home. Subject to the agreement and available credit, borrowers may draw funds during a draw period. Draw periods and credit limits vary by lender.
Interest is generally calculated on the outstanding balance rather than the full credit limit. Some agreements permit interest-only payments during the draw period; others require principal payments too. After the draw period, repayment obligations may increase substantially. Our HELOC Payment Calculator illustrates payment scenarios using stated assumptions.
One common feature: the ability to draw funds as needed. For example, with a $50,000 credit limit and $10,000 outstanding, interest is generally based on the $10,000 balance, subject to the agreement. Fees and required payments may still apply.
Quick Comparison At-A-Glance
| Feature | HELOC | Home Equity Loan |
|---|---|---|
| Payout | Flexible, revolving line of credit | Single lump sum |
| Interest rate | Often variable; some fixed-rate options exist | Typically fixed |
| Early payments | May be interest-only or include principal | Usually scheduled principal and interest |
| Borrowing structure | Access funds in stages, subject to terms | Receive an agreed lump sum upfront |
Factors to Compare
A home equity loan commonly provides a lump sum with a fixed rate and scheduled payments. This can make payment estimates easier to compare, but it does not eliminate fees, repayment obligations or the risk of losing the home if payments are missed.
A HELOC generally allows draws over time, but its rate may change and payments may rise, particularly when the draw period ends. Compare the total cost, fees, rate terms, repayment schedule and collateral risk of each product. The Borrowing Power Calculator can illustrate borrowing room under assumed limits; it cannot determine eligibility. For independent background, see the CFPB HELOC guide.