Borrowing against equity

HELOC vs. Home Equity Loan: What's the Difference?

Both are second liens against your home. The difference is how the money arrives and how the interest is priced.

Home equity loan: one lump sum, fixed rate

You borrow a set amount at closing and repay it on a fixed schedule, typically over 5 to 20 years. The payment never changes.

It suits a known, one-time cost — a defined renovation contract, a specific debt payoff.

HELOC: a credit line, usually variable

You are approved for a limit and draw what you need during a draw period of about ten years, paying interest only on what you have drawn. After that, repayment begins and the payment jumps.

It suits staged or uncertain spending, but the variable rate means your payment can rise.

Choosing between them

  • Know the exact amount and want payment certainty → home equity loan.
  • Spending in stages or want a standby reserve → HELOC.
  • Expect rates to fall → the HELOC's variable rate works in your favor.
  • On a fixed income → the fixed payment is usually worth a slightly higher rate.

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Frequently asked

Sometimes, if your combined loan-to-value stays under the lender's cap, but most lenders prefer a single second lien.

HELOCs usually do, and many lenders waive them entirely — often with a clawback if you close the line within three years.

Part of The Homeowner's Guide to Home Equity.

More on borrowing against equity

Cash-Out Refinance vs. HELOC: Which Is Right for You?

When it makes sense to replace your mortgage versus adding a second line of credit against your home.

How Much of My Equity Can I Actually Borrow?

Most lenders cap you at 80–85% CLTV. Here is the math on what that leaves you.

What Credit Score Do You Need for a HELOC?

Typical HELOC credit score minimums, what rates each tier gets, and how to improve your odds.