If you own your home and have built up equity, there are two common ways to borrow against it: a home equity line of credit (HELOC) and a home equity loan. Both use your home as collateral, and if you already have a mortgage, both are second mortgages that you pay on top of your first one.1 The difference is in how you receive the money and how your rate and payment behave.
The short answer
- Home equity loan: you borrow a set amount and get it all at once, as a lump sum. Rates can be fixed or adjustable.1
- HELOC: you get a credit limit and can draw from it several times, a bit like a credit card. HELOCs usually have adjustable rates, and your payment changes with your balance.1
Side by side
| Feature | HELOC | Home equity loan |
|---|---|---|
| How you get the money | Draw as needed, up to a limit | One lump sum |
| Interest rate | Usually variable | Fixed or adjustable |
| Payment | Changes with balance and rate | Set by the loan terms |
| Can you borrow again? | Yes, during the draw period | No, you’d need a new loan |
| Secured by your home | Yes | Yes |
How a HELOC works
A HELOC has two stages. During the draw period, which could last 10 years for example, you can spend up to your credit limit at any time.2 Many HELOCs have minimum monthly payments based on your current balance during this stage.
When the draw period ends, you enter the repayment period. You can no longer borrow, and the lender may set a schedule to repay the full balance, often over 10 or 20 years. The CFPB notes that monthly payments are often significantly higher once repayment starts, and in some cases the whole balance may be due right away.2
Things to ask a lender about:
- Fees and minimums. Some plans require you to borrow a minimum amount each time or keep a minimum balance.2
- Rate conversion. Some HELOCs let you switch part of the balance to a fixed rate, which is usually higher but more predictable.2
- Credit line freezes. If your home’s value drops significantly or your finances change, the lender may stop you from drawing more.2
How a home equity loan works
With a home equity loan, you receive the full amount up front.1 That makes it a natural fit for a single, known cost, such as a specific renovation or paying off a set amount of higher-interest debt. You start repaying the whole amount right away.
Which one fits your situation?
A home equity loan may suit you if you know exactly how much you need and want a predictable repayment plan.
A HELOC may suit you if your costs will arrive in stages, like a renovation paid in phases, and you’re comfortable with a payment that can change.
Either way, compare offers from more than one lender. Rates, fees and terms vary. For context, the national average HELOC rate was 7.49% (Bankrate national survey, Nov 4, 2026). Your own rate depends on your credit, your home’s value and the lender.
Taxes
According to IRS Publication 936, interest on home equity loans and lines of credit is deductible only if the money is used to buy, build or substantially improve the home that secures the loan.3 If you use it for something else, such as paying off credit cards, the interest generally isn’t deductible. Check with a tax professional.
Risks to weigh
The most important one: your home is the collateral. The CFPB advises only considering a HELOC if you’re confident you can keep up with the payments, because if you fall behind you could lose your home.2 If you’re already struggling with your mortgage, the CFPB suggests talking to a HUD-approved housing counselor before taking on a home equity loan or HELOC.1
Footnotes
Frequently asked questions
Is a HELOC or a home equity loan better?
Neither is better for everyone. A home equity loan gives you a lump sum and often a predictable payment, which suits a one-time cost. A HELOC lets you borrow as you go, which suits costs spread over time, but its rate and payment usually change.
Can I lose my home with a HELOC or home equity loan?
Yes. Both are secured by your home. If you can't repay, you could lose your home, so only borrow what you're confident you can pay back.
Is the interest tax deductible?
According to IRS Publication 936, interest on home equity loans and lines of credit is deductible only if the money is used to buy, build or substantially improve the home that secures the loan. Ask a tax professional about your situation.