What is the difference between a HELOC and a home equity loan?

A HELOC is a revolving line of credit with a variable rate that you draw from as you need it, while a home equity loan is a one-time lump sum with a fixed rate and a fixed monthly payment. Both are second mortgages secured by your home, so the right one depends on whether you need flexible access over time or a set amount right now.

If you know the exact amount and want a payment that never changes, the home equity loan fits. If you want a reserve you can pull from over several years, the HELOC fits.

How does a HELOC work?

A HELOC gives you a credit limit you can borrow against, pay back, and borrow against again, much like a credit card secured by your house. It runs in two phases. During the draw period, usually about 10 years, you can pull funds and often pay interest only. After the draw period ends, the repayment period begins, usually up to 20 years, and your payments include principal and interest until the balance is gone. The rate is almost always variable.

How does a home equity loan work?

A home equity loan hands you the full amount at closing in one lump sum. You repay it in equal monthly installments over a set term, often 10 to 20 years, at a fixed rate that never changes. There is no draw period and no revolving balance. You borrow once and pay it down on a schedule.

What is the main difference in the interest rate?

The HELOC rate is variable and the home equity loan rate is fixed. HELOCs are typically tied to the prime rate, the baseline rate banks charge their most creditworthy customers, so when the Federal Reserve moves, your HELOC rate follows. Prime sits at 7.50 percent right now. A home equity loan locks your rate at closing, so it is immune to Fed moves for the life of the loan.

How do the payments compare?

A home equity loan payment is predictable from day one, because both the rate and the balance follow a fixed schedule. A HELOC payment can start low, since draw-period payments are often interest only, then jump when the repayment period starts and principal gets added. Two things can push a HELOC payment up over time: rising rates and the shift out of the interest-only phase.

What do rates look like right now?

National average second mortgage rates. Source: Curinos. Verified as of July 13, 2026. HELOC, variable: 7.23 percent Home equity loan, fixed: 7.36 percent Difference: about 2 basis points

Today the gap between the two averages is only about 2 basis points, which is unusually tight. When rates are this close, the choice is not really about which is cheaper this month. It is about whether you want a rate that can move and flexible access, or a rate that is locked and a fixed payoff.

Which one should I choose?

Choose the home equity loan when you have a single known cost, like a defined renovation bid or a debt payoff, and you want a payment you can count on. Choose the HELOC when your need is spread out or uncertain, like a multi-stage remodel or a cash reserve, and you are comfortable with a rate that can change. As Emmett Clark, licensed in 18 states with access to more than 240 wholesale lenders, I match the file to the lender whose terms fit the plan, because the same borrower can get very different pricing depending on the second-mortgage program.

Can I have both?

Yes, on the same home you can carry a first mortgage plus one of these, and in some cases both a home equity loan and a line, as long as your combined loan-to-value stays inside the lender's cap. The cap is usually around 80 to 85 percent of value, though some programs go higher.

Before you compare the two, make sure you know how much you can tap by reading how to calculate your home equity. If you are weighing whether to touch your first mortgage at all, see home equity loan versus cash-out refinance.