Updated 27 March 2026
HELOC vs Home Equity Loan: Costs
A HELOC gives you a credit line with variable rates and low initial payments. A home equity loan gives you a lump sum with fixed payments. The right choice depends on whether you need the money all at once or over time.
Side-by-Side
| Factor | HELOC | Home Equity Loan |
|---|---|---|
| How you receive money | Revolving credit line (draw as needed) | Lump sum upfront |
| Interest rate type | Variable (prime + margin) | Fixed for entire term |
| Typical rate (2026) | 8.5-10.5% | 8.0-9.5% |
| Monthly payment | Interest-only during draw period, then P+I | Fixed P+I from day one |
| Draw period | 5-10 years (borrow and repay, repeat) | N/A (receive full amount once) |
| Repayment period | 10-20 years after draw period ends | 5-30 years (fixed from closing) |
| Closing costs | Often $0-$500 (many waive fees) | 2-5% of loan amount ($2,000-$10,000) |
| Payment predictability | Unpredictable (rate changes monthly) | Completely predictable (fixed) |
| Best for | Ongoing expenses (renovations, tuition over years) | One-time large expense (debt consolidation, single project) |
| Risk | Payment shock when draw period ends or rates rise | No surprises, but you pay interest on full amount from day one |
Cost Example: Borrowing $50,000
HELOC at 9.0% variable
Draw period interest (5 years): $22,500 (interest-only during draw) + principal repayment after
Then principal + interest payments for 10-15 year repayment period. Total cost depends on how rates move.
Risk: if prime rate increases 2%, your rate goes from 9% to 11%, adding ~$83/month to payments.
Home Equity Loan at 8.5% fixed
Fixed payment for 15 years: ~$492/month
Total interest over 15 years: ~$38,600. Completely predictable. No rate risk.
Trade-off: you pay interest on the full $50K from day one, even if you don't use it all immediately.
The decision framework:
HELOC if you need money over time (multi-phase renovation, tuition payments over years) and can handle payment variability. Home equity loan if you need a fixed amount now (debt consolidation, one-time project) and want payment certainty. Both use your home as collateral - if you cannot make payments, you can lose your house.