The Core Difference
A home equity loan gives you a lump sum of cash upfront, repaid at a fixed interest rate over a set term. A HELOC is a revolving line of credit — like a credit card secured by your home — with variable rates and flexible access during the draw period.
Home Equity Loan: The Fixed-Rate Option
How It Works
You borrow a set amount, receive it all at once, and repay it in equal monthly installments over 5 to 30 years. Your rate is fixed from day one — so your payment never changes.
Best For:
- Large, one-time expenses with a known cost (kitchen remodel, medical bills, debt payoff)
- Borrowers who prefer payment predictability
- When you expect interest rates to rise
Typical Terms:
- Loan amounts: $25,000 to $750,000+
- Terms: 5–30 years
- Rates: Fixed, typically 6.5–9.5%
- Closing costs: 2–5% of loan amount
HELOC: The Flexible Revolving Option
How It Works
You're approved for a maximum credit limit and can draw from it as needed during the draw period (usually 5–10 years). You only pay interest on what you borrow. After the draw period, you repay principal and interest over the repayment period.
Best For:
- Ongoing expenses without a fixed total (home renovations over time, education, business expenses)
- Borrowers who want flexibility and won't necessarily use all available funds
- When you expect interest rates to decrease
Typical Terms:
- Credit limits: $25,000 to $500,000+
- Draw period: 5–10 years
- Repayment period: 10–20 years
- Rates: Variable, tied to prime rate
Side-by-Side Comparison
| Feature | Home Equity Loan | HELOC |
|---|---|---|
| Disbursement | Lump sum | As needed |
| Interest rate | Fixed | Variable |
| Monthly payment | Predictable | Varies with usage |
| Best for | Known, one-time costs | Ongoing or uncertain costs |
| Interest paid on | Full loan amount | Only what you borrow |
Tax Deductibility
Interest on both products may be tax-deductible if the funds are used to "buy, build, or substantially improve" the home securing the loan. Consult your tax advisor for your specific situation, as rules can vary.
Which Should You Choose?
Choose a home equity loan if you know exactly how much you need and want the security of a fixed rate. Choose a HELOC if your needs are flexible, you want to pay interest only on what you use, or you're using the funds over an extended period.
Still not sure? Our loan officers at True Equity Line will analyze your situation and recommend the best product for your goals — with no obligation.