US Real Estate & Mortgage Research Analyst
Published: April 1, 2026 · Updated: April 1, 2026 · 8 min read
Key Takeaways
- • Home equity loan = lump sum, often fixed rate, fixed payments
- • HELOC = revolving credit line, usually variable rate, interest on draws only
- • Lump sum fits known one-time costs; HELOC fits staged or uncertain costs
- • Both use your home as collateral — missed payments risk the property
- • Deductibility depends on how the funds are used (IRS rules)
If you have built up equity, you can tap it two common ways: a home equity loan or a home equity line of credit (HELOC). They sound similar but behave differently in how you receive the money and how you pay it back.
How Each One Works
A home equity loan is a second mortgage: you receive the full amount once and repay it in level installments over a set term, often at a fixed rate. A HELOC opens a credit line you draw from during a draw period (like a credit card tied to your home), and you pay interest only on the balance you use. After the draw period, a repayment period begins.
Side-by-Side Comparison
| Feature | Home Equity Loan | HELOC |
|---|---|---|
| Payout | One lump sum | Draw as needed |
| Rate | Often fixed | Typically variable |
| Interest charged on | Full loan from day one | Only what you draw |
| Best for | Known, one-time cost | Staged or uncertain costs |
Which Should You Pick?
If your expense is a fixed, known number — a single contractor bill, a debt payoff — a lump-sum loan's predictability is attractive. If you expect to spend in stages, or are unsure how much you will need, a HELOC lets you borrow only what you use and can cost less in interest early on, at the trade-off of a rate that can move.
Run the Numbers
Use our free Home Equity Loan Calculator to see a lump-sum payment scenario, and the Home Value Appreciation Calculator to estimate how your available equity may grow over time before you commit.
Editor Update Note
This article was last reviewed and updated on April 1, 2026. Terms, rates, and structures vary by lender and market; always review official disclosures for exact figures before borrowing.
Try These Free Calculators
- Home Equity Loan Calculator — Model a lump-sum payment scenario.
- Home Value Appreciation Calculator — Estimate your growing equity.
Frequently Asked Questions
What is the main difference between a HELOC and a home equity loan?
A home equity loan gives you a single lump sum that you repay in fixed monthly payments, usually at a fixed rate. A HELOC is a revolving line of credit you draw from as needed during a draw period, and the rate is typically variable. The lump sum suits a known, one-time cost; the line of credit suits ongoing or uncertain expenses.
How is interest charged on each?
On a home equity loan you pay interest on the full amount from day one. On a HELOC you generally pay interest only on what you actually draw, which can make it cheaper if you use the credit slowly or in pieces. Because HELOC rates are usually variable, your payment can change over time.
Which is better for a home renovation?
It depends on the project. A single large remodel with a fixed contract often pairs well with a lump-sum home equity loan. A longer, phased project where costs arrive in stages may be cheaper with a HELOC since you borrow and pay interest only as you go.
Can the interest on either be tax-deductible?
Interest on home equity debt may be deductible if the funds are used to buy, build, or substantially improve the home that secures it, subject to IRS limits and rules. It is not deductible for unrelated spending. Ask a tax professional about your specific situation.
What should I watch out for with a HELOC?
The variable rate can rise, your payment can increase after the draw period ends, and you may face a balloon or fully-amortizing payment you did not expect. Because both options use your home as collateral, missed payments put the property at risk.