ADU financing comparison
Most ADUs are funded with home equity. Compare a HELOC, a construction loan, a home equity loan, and all-cash on example 2026 rates and standard amortization. Use it to frame the conversation with your lender — not as a quote.
Rates shown are example rates (2026) for illustration only — verify actual pricing, fees, and draw schedules with your lender.
| Option | Example rate | Monthly payment | Total interest (20 yr) | How it works |
|---|---|---|---|---|
| HELOC | 8.5% (example) | $1,736 | $216,555 | Revolving line; often interest-only during draw, then amortizes. Variable rate tied to prime; payment can rise. Good for phased draws. |
| Construction loan | 9% (example) | $1,799 | $231,868 | Interest-only during build (≈12 mo), then converts to a fixed/ARM amortizing loan. Draws released by inspection; you pay interest only on funds used. |
| Home equity loan | 8% (example) | $1,673 | $201,491 | Lump sum, fixed rate, fully amortizing from day one. Predictable payment; closes once, ideal when the full budget is known. |
| Cash / savings | 0% (no loan) | — | — | No loan — pay from equity or savings. No interest or debt, but ties up capital (opportunity cost). |
Which fits? A HELOC or construction loan suits phased builds and keeps early payments low (interest-only). A home equity loan gives a fixed, predictable payment once the full budget is known. Cash avoids all interest but locks up equity. Most ADU loans are secured by home equity — qualification depends on your loan-to-value ratio and credit.