How a HELOC Differs From a Home Equity Loan, Explained
Key takeaways
- A HELOC is a revolving credit line you draw from during a 10-year draw period, usually at a variable rate.
- A home equity loan delivers a lump sum at closing with a fixed rate and set monthly payments.
- HELOC rates averaged 7.18% and home equity loans 6.86% nationally as of October 29, 2026, per MonitorBankRates.
A home equity loan and a HELOC (home equity line of credit) both let homeowners borrow against the equity in their home. That shared trait ends there.
One hands you a lump sum at a fixed rate. The other opens a credit line you can tap for years, with a rate that moves.
This article explains the differences in how each product works, including the draw period, the repayment period, and how each charges interest.
What is a HELOC?
A HELOC is a revolving line of credit secured by your home. The lender approves you for a maximum amount, say $75,000. During the draw period, which typically lasts 10 years, you borrow what you need, when you need it, and repay and re-borrow as you go.
You pay interest only on the amount you actually use. Borrow $10,000 and you are charged interest on $10,000, not on the full line.
When the draw period ends, the line closes to new draws and the repayment period begins. This second phase often runs 10 to 20 years. You then pay down the outstanding balance with principal plus interest, which usually raises your monthly payment.
Most HELOCs carry a variable interest rate tied to the prime rate plus a margin, according to Quicken Loans. That means payments can rise or fall as broader rates move.
Some lenders also allow interest-only payments during the draw period. That keeps early payments low but means you are not reducing the balance.
What is a home equity loan?
A home equity loan gives you the full amount as a single lump sum at closing. The rate is fixed, the term is set, commonly 5 to 30 years, and you make equal monthly payments from the start.
Because the payment never changes, the product is sometimes called a second mortgage. You are insulated from rising rates. The trade-off is that you begin paying interest on the full balance immediately, even if you spend the money slowly.
Quicken Loans notes that HELOCs and home equity loans typically share closing costs of 2% to 5% of the loan amount. Both are secured by the home, and most lenders cap combined borrowing at 80% to 85% of the home's value, a ratio called the combined loan-to-value, or CLTV.
HELOC vs home equity loan: the key differences
The core split is structure versus certainty.
| Feature | HELOC | Home equity loan |
|---|---|---|
| How funds arrive | Revolving line, drawn as needed | Lump sum at closing |
| Interest rate | Usually variable, tied to prime | Fixed for life of loan |
| Draw period | Typically 5 to 10 years | None |
| Repayment period | Typically 10 to 20 years after draw ends | 5 to 30 years from closing |
| Monthly payment | Varies with balance and rate | Fixed and predictable |
| Interest charged on | Only what you draw | The full balance from day one |
| Closing costs | 2% to 5% of loan amount | 2% to 5% of loan amount |
LendingTree describes the HELOC as best for ongoing expenses, such as multiple home repairs or business startup costs, while the home equity loan suits large one-time expenses like a single renovation or debt consolidation.
Rate risk is the sharpest difference. A variable HELOC rate can climb across a decade-long draw period, pushing payments higher. With a fixed home equity loan, the number agreed at closing is the number you pay every month.
How the draw period and repayment period work
The two-phase structure of a HELOC deserves a closer look, because this is where borrowers get surprised.
During the draw period, the line behaves much like a credit card secured by your house. You draw funds, make payments, and the available credit replenishes. Many lenders accept interest-only payments in this phase.
When the draw period ends, the repayment period starts and the line closes. Principal payments kick in on top of interest. If you spent the draw period paying interest only, your monthly payment can jump substantially at this transition.
A hybrid option exists at some lenders. Certain HELOC products let borrowers lock a fixed rate on a portion of the outstanding balance while the rest stays variable. This is worth asking about if you like flexibility but dislike rate swings.
Current rates and costs
Rates on both products move with the broader market. MonitorBankRates reported national average rates as of October 29, 2026, computed from rates published by more than 8,000 banks and credit unions: 7.18% for a HELOC and 6.86% for a home equity loan.
Averages are only a starting point. Your actual rate depends on your credit score, your CLTV, the property, and the lender. Home equity products are widely marketed, so comparing multiple lenders matters as much as it does with mortgages and interest rates.
One more cost to plan for: closing costs of 2% to 5% of the loan amount apply to both products. On a $100,000 line or loan, that is $2,000 to $5,000 in fees at closing.
Which one fits which situation?
Pick the home equity loan when you need a single, known amount and want a fixed payment. It fits a roof replacement, a kitchen remodel with a signed contract, or a debt payoff with a clear total.
Pick the HELOC when your costs are ongoing or uncertain. Phased renovations, tuition paid over several years, or a business with variable cash needs all benefit from drawing only what is used, paying interest only on that amount.
Consider the risks on both sides. With a home equity loan, you pay interest on money you may not have spent yet. With a HELOC, you accept rate uncertainty and the payment jump when the repayment period starts.
The flexibility of a credit line can also tempt overspending, since the money is always a click away.
This is an explainer, not financial advice. Borrowing against a home puts the property itself at risk if payments fail, so review any offer with a licensed professional before signing.
The bottom line
A HELOC is flexible credit with a variable rate and two distinct phases. A home equity loan is a fixed lump sum with a fixed payment. Match the product to your cost pattern: one known bill points to the loan, while drawn-out or uncertain costs point to the line.
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This is general information, not financial advice. Check terms with a licensed professional before borrowing.
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