What is the difference between a HELOC and a home equity loan?

A HELOC (Home Equity Line of Credit) is a revolving line of credit secured by your home, similar to a credit card. It has a variable rate, a draw period (commonly 10 years) during which you can borrow and repay flexibly, and a repayment period during which the balance amortizes. A home equity loan is a lump-sum installment loan with a fixed rate and a fixed term — you receive the full amount upfront and make level monthly payments until it is paid off. HELOCs offer flexibility; home equity loans offer certainty.

Which has a lower interest rate, HELOC or home equity loan?

HELOC rates are usually lower at the start because they are tied to the prime rate and adjust with the market — but they can rise over time. Home equity loan rates are fixed and typically start slightly higher than a HELOC's introductory rate, but they never change. If interest rates fall, the HELOC becomes cheaper; if rates rise, the home equity loan locks in the lower rate. The calculator shows the interest-only HELOC payment and the total interest for both options so you can compare under your rate assumptions.

How does a HELOC draw period work?

During the draw period (typically 10 years) you can borrow up to your credit limit, repay, and borrow again — much like a credit card. Most HELOCs require interest-only payments during the draw period, which keeps the monthly payment low but does not reduce the principal. When the draw period ends, the balance converts to an amortizing loan over the repayment period (commonly 10 to 20 years), and the monthly payment jumps because you begin paying principal plus interest. Some HELOCs allow a balloon payment at the end instead.

Can I deduct the interest on a HELOC or home equity loan?

Yes, but only if you use the proceeds to buy, build, or substantially improve the home that secures the loan, and only if you itemize deductions. Interest on debt used for other purposes (paying off credit cards, college tuition, a car) is not deductible. The deduction is limited to interest on up to $750,000 of qualified home debt (including your first mortgage). Consult a tax professional for your specific situation, especially after the Tax Cuts and Jobs Act changes.

What are the risks of a HELOC?

The biggest risk is the variable rate: if rates rise, your payment can increase sharply, especially when the draw period ends and principal payments begin. Interest-only payments during the draw period can also lull borrowers into keeping a high balance. Because both products are secured by your home, failure to repay can lead to foreclosure. Avoid using home equity for depreciating assets or consumption; reserve it for improvements that increase the home's value or for consolidating higher-rate debt with a clear payoff plan.

How much can I borrow against my home equity?

Most lenders allow a combined loan-to-value (CLTV) ratio of 80% to 90% — meaning your first mortgage plus the HELOC or home equity loan cannot exceed 80% to 90% of the home's appraised value. On a $500,000 home with a $300,000 first mortgage, an 80% CLTV allows $100,000 of additional borrowing ($400,000 total debt). The calculator focuses on the loan amount you choose; check with lenders on your specific CLTV limit and required credit score (typically 680+).

HELOC vs Home Equity Loan Calculator

A HELOC vs home equity loan comparison tool is a free online tool that compares variable-rate HELOCs against fixed-rate home equity loans. It shows total interest, monthly payments, and which borrowing option fits your needs. Free, no sign-up required.

Borrowing Options

Loan Amount?Enter your loan amount.

HELOC Rate (Variable)?Enter your heloc rate (variable).

Home Equity Rate (Fixed)?Enter your home equity rate (fixed).

Loan Term?The length of your mortgage in years. Common terms are 15 or 30 years.

End of inputs

HELOC vs Home Equity Loan

Metric	HELOC (Variable) Interest-only draw for 10 yrs at 8.00%, then 20-yr amortization	Home Equity Loan (Fixed) Lump sum at 8.50% over 20 years
Interest-Only Payment	$333.33	$433.91
Repayment Payment	$418.22	$54,138.40
Total Interest	$90,372.40	$104,138.40
Flexibility	High	Fixed

$36,234.00 interest difference. HELOC payment rises from $333.33 to $418.22 when repayment begins; home equity loan stays at $433.91/mo throughout.

Key Insights

The HELOC's interest-only draw payment is $333.33/mo for 10 years, then jumps to $418.22/mo when principal payments begin.

Total HELOC interest across draw + repayment is $90,372.40; the home equity loan's fixed-rate interest is $54,138.40.

Home equity loan saves $36,234.00 in interest and locks in the rate. Choose HELOC for flexibility, home equity for certainty.

Guide

How to Use This Calculator

1Enter the loan amount you want to borrow against your home equity (the lump sum for a home equity loan, or the credit limit / draw amount for a HELOC).
2Set the HELOC interest rate. HELOC rates are variable and tied to the prime rate; use your lender's current rate or a typical market rate.
3Set the home equity loan interest rate. Home equity loan rates are fixed and typically start slightly higher than a HELOC's introductory rate.
4Choose the loan term in years. For a HELOC this is the repayment period after the 10-year draw; for a home equity loan it is the full amortization term.
5Review the side-by-side metrics: the HELOC shows the interest-only draw payment and total interest across draw + repayment; the home equity loan shows the fixed monthly payment, total interest, and total cost.
6Read the AI Insight panel for a personalized interpretation of the rate risk, flexibility trade-off, and total cost difference.

Formula

How It's Calculated

HOME EQUITY LOAN SCENARIO uses the standard amortizing-loan payment:

M = P × [r(1+r)^n] / [(1+r)^n − 1]

Where:
- P = loanAmount
- r = monthly rate = homeEquityRate ÷ 12
- n = loanTermYears × 12

  monthlyPayment = M  (fixed for the full term)
  totalInterest  = (M × n) − loanAmount
  totalCost      = M × n

HELOC SCENARIO has two phases:
  Draw period (10 years, interest-only):
    interestOnlyPayment = loanAmount × (helocRate ÷ 12)
    drawInterest = interestOnlyPayment × 120   (balance stays at loanAmount)

  Repayment period (loanTermYears, amortizing):
    repaymentPayment = monthlyPayment(loanAmount, helocRate, loanTermYears × 12)
    repaymentInterest = (repaymentPayment × n) − loanAmount

  totalInterest = drawInterest + repaymentInterest

WINNER: the scenario with the lower totalInterest.

Example — $50,000 borrowed:
  Home Equity Loan: 8.5% fixed, 20-year term → monthly $433.84,
    total interest $54,122, total cost $104,122
  HELOC: 8.0% variable, 10-yr draw + 20-yr repayment
    interest-only payment $333.33/mo during draw,
    repayment payment $418.22/mo,
    total interest $40,000 (draw) + $50,373 (repayment) = $90,373

Here the HELOC has lower total interest because of its lower rate and
interest-only draw, but its payment can rise if rates increase, and it
jumps from $333 to $418 when the repayment phase begins.

Glossary

Key Terms

FAQ

Frequently Asked Questions

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