Home Equity Loan vs HELOC Comparison Calculator
Compare a fixed-rate home equity loan against a variable-rate HELOC side-by-side. See monthly payments, total interest, and which option saves more for your specific borrowing amount and timeline.
Home Equity Loan vs HELOC: Key Differences in 2026
Both home equity loans and home equity lines of credit (HELOCs) let you tap home equity using your property as collateral, but they work very differently. According to the Federal Reserve and Consumer Financial Protection Bureau, a home equity loan is a fixed-rate, lump-sum installment loan amortized over a set term (typically 5–30 years). A HELOC is a revolving credit line with a variable rate, structured as an interest-only draw period (typically 10 years) followed by a fully-amortizing repayment period (typically 20 years).
As of May 2026, Bankrate's national average home equity loan rate is approximately 7.5% (fixed) while HELOC rates average 8.5% (variable, tied to prime). Both products have closing costs of $0–$500 (much lower than cash-out refinance's 2–5% of loan amount).
When the Fixed Home Equity Loan Wins
The fixed home equity loan typically wins when:
- You need a lump sum for a defined project (kitchen remodel, debt consolidation, college tuition)
- You want payment certainty — the same payment for the entire term
- You expect rates to rise — a fixed rate protects you from future Fed hikes
- You will repay slowly — fixed amortization spreads cost evenly
When the HELOC Wins
- You need flexible access over time (multi-year renovation, business cash flow)
- You can repay quickly (within 2–3 years) — the interest-only draw period saves cash flow
- You expect rates to fall — variable rate captures Fed rate cuts automatically
- You may not use all the available credit — only borrow and pay interest on what you draw
The Rate Risk Stress Test
This calculator includes a rate stress test on the HELOC because variable rates can swing significantly. Per the Federal Reserve, prime rate has ranged from 3.25% to 8.5% over the past 15 years — a 5+ percentage-point swing. Most HELOC contracts have a lifetime rate cap of 18% but the Federal Reserve recommends underwriting your repayment plan assuming at least a 2% rate rise during the draw period.
The IRS Pub 936 confirms that interest on both home equity loans and HELOCs is tax-deductible only when proceeds are used to "buy, build, or substantially improve" the home securing the loan (post-TCJA rule). Using the funds for credit card payoff or other purposes makes the interest non-deductible.
Combined LTV Limits in 2026
For both products, lenders typically allow a combined loan-to-value (CLTV) of 80–85%, meaning your first mortgage plus the home equity loan or HELOC balance cannot exceed 80–85% of your home's appraised value. Some lenders allow up to 90% CLTV for borrowers with FICO 720+ but charge higher rates.
Sources: Consumer Financial Protection Bureau (consumerfinance.gov), Federal Reserve consumer credit data (federalreserve.gov), Bankrate Home Equity Rate Survey (bankrate.com), IRS Publication 936 (irs.gov). Last updated: May 2026.
Frequently Asked Questions
What is the main difference between a home equity loan and a HELOC?
A home equity loan is a fixed-rate, lump-sum installment loan — you receive the entire amount at closing and repay in equal monthly payments over 5–30 years. A HELOC is a variable-rate revolving credit line — you can draw funds as needed during a 10-year draw period (interest-only payments), then enter a 20-year repayment phase. The CFPB groups both under "home equity products" but underwrites them differently.
Which has lower closing costs?
Both have minimal closing costs compared to a cash-out refinance. Home equity loans typically have $0–$500 in fees (some lenders waive entirely). HELOCs usually have $0–$300 in fees, sometimes including annual fees of $50–$100. Always ask for a Loan Estimate showing all costs — per Truth in Lending Act, lenders must provide this within 3 business days of application.
Are home equity loan and HELOC interest tax-deductible?
Per IRS Publication 936, interest on both products is deductible only when the proceeds are used to "buy, build, or substantially improve" the home that secures the loan. Using funds for credit card payoff, college tuition, vacations, or other personal expenses makes the interest non-deductible. This rule was tightened by the 2017 Tax Cuts and Jobs Act and remains in effect for 2026.
Can I switch from a HELOC to a fixed home equity loan?
Most lenders offer a "fixed-rate advance" feature on HELOCs — you can convert all or part of your outstanding balance to a fixed-rate installment loan within the HELOC. Alternatively, you can refinance the HELOC into a new fixed home equity loan or roll it into a cash-out refinance. The right move depends on the rate environment and how much you still owe.
How much equity do I need to qualify?
Most lenders require you to retain at least 15–20% equity after the loan. Combined loan-to-value (CLTV) ratio — first mortgage + home equity loan or HELOC balance divided by home value — must typically be 80–85% or lower. Some lenders allow 90% CLTV for FICO 720+ borrowers but at higher rates. Verify with multiple lenders since CLTV limits vary.
Which is safer if interest rates rise?
The fixed home equity loan is unquestionably safer — your rate and payment never change. HELOCs are variable; if the Federal Reserve raises rates, your HELOC payment rises with the prime rate. The Federal Reserve recommends stress-testing HELOC repayment plans at +2% from the initial rate. If you have $50,000+ on a HELOC and rates rise 2%, your annual interest cost rises by $1,000.