Key takeaways
- A home equity loan gives you a lump sum at a fixed rate. A HELOC is a revolving credit line with a variable rate that you draw from as needed.
- As of Oct. 21, 2026, Bankrate’s averages were 7.36% for HELOCs and about 8.77% for 10-year home equity loans.
- Most lenders let you borrow up to 80% of your home’s value minus your mortgage balance, and some go to 85% or 90%.
- On a $50,000 balance, an interest-only HELOC payment of about $307 can jump to about $399 when repayment starts, even if rates don’t rise.
Choosing between a home equity loan and a HELOC comes down to one question: do you need a set amount of money all at once, or flexible access over time? A home equity loan works best for a single, known expense, such as a roof replacement or paying off high-rate debt, because you get a fixed rate and a fixed payment. A HELOC fits projects with uneven costs, like a remodel paid in stages, because you borrow only what you use.
Both use your home as collateral, so both carry real risk. And because the two products price differently right now, with HELOC rates lower on average but able to change, the cheaper choice today may not stay cheaper. Here’s how they compare, what they cost and how to pick.
Home equity loan vs. HELOC at a glance
| Feature | Home equity loan | HELOC |
|---|---|---|
| How you get the money | One lump sum at closing | Draw as needed, up to a credit limit |
| Interest rate | Fixed | Usually variable, tied to the prime rate |
| Average rate (Oct. 21, 2026) | 8.67% (5-yr), 8.77% (10-yr), 8.76% (15-yr) | 7.36% |
| Payments | Same principal-and-interest payment every month | Often interest-only during the draw period, then principal and interest |
| Typical term | 5 to 30 years | Often a 10-year draw period plus 20-year repayment |
| Upfront costs | Closing costs similar to a mortgage | Often low or no closing costs; may have annual or early-closure fees |
| Interest charged on | The full amount from day one | Only what you’ve drawn |
| Best for | One-time costs with a known price | Ongoing or uncertain costs |
Bankrate’s averages assume a $30,000 loan, a 700 FICO score and an 80% combined loan-to-value ratio. Your rate will depend on your credit, equity and lender, and Bankrate’s HELOC survey showed offers ranging from 3.99% to 11.85%.
How a home equity loan works
A home equity loan is a second mortgage. You borrow a fixed amount, get the whole sum at closing and repay it in equal monthly installments over a set term. Because the rate is fixed, your payment never changes. That predictability is the main selling point.
The trade-off is that you pay interest on the full balance from the first day, even if you don’t need all the cash right away. Closing costs can also be meaningful. Expect fees such as origination, appraisal and title charges, and compare them on each lender’s Loan Estimate, which lenders must provide for closed-end home equity loans.
Who it’s best for
- Homeowners with one defined expense, such as a $40,000 roof and siding job with a signed contract.
- Borrowers consolidating high-interest credit card debt who want a fixed payoff date.
- Anyone who’d lose sleep over a payment that can rise.
How a HELOC works
A home equity line of credit works more like a credit card secured by your house. The lender approves a credit limit, and you can draw, repay and draw again during the draw period, often 10 years. Many HELOCs require only interest payments during that stretch. After it ends, the repayment period begins. You can’t borrow more, and your payment now covers principal and interest, usually over about 20 years.
Most HELOC rates are variable. They’re set as the prime rate plus a margin, so when the Federal Reserve moves, your rate moves too. The prime rate is currently 7.00%, based on the Fed’s target range of 3.75% to 4.00%, which the Fed held on Oct. 28, 2026. Two of the 12 voting officials wanted a hike, so don’t assume HELOC rates will fall soon. See our breakdown of what the Fed’s October decision means for borrowers.
Watch for these HELOC features:
- Introductory rates. Some lenders advertise a low teaser rate for six or 12 months. Ask what the rate becomes afterward.
- Fees. Annual fees, minimum-draw requirements and early-closure fees are common.
- Fixed-rate options. Some lenders let you lock all or part of your balance at a fixed rate, which can blunt rate risk.
- Line freezes. Federal rules allow a lender to freeze or cut your line if your home’s value drops significantly or your finances change materially. Don’t count on an untouched HELOC as your only emergency backup.
For a deeper look at how credit lines work across products, see our guide to personal, HELOC and business lines of credit.
How much can you borrow?
Lenders usually cap your combined loan-to-value ratio (CLTV), meaning all the debt on your home divided by its appraised value, at 80%. Some go to 85% or 90%, often at a higher rate.
Example: Your home appraises at $400,000 and you owe $250,000 on your mortgage.
- 80% of $400,000 = $320,000
- $320,000 − $250,000 = $70,000 maximum home equity loan or HELOC
Beyond equity, lenders look at your credit and income. A score of about 680 has long been a common benchmark, though some lenders accept lower scores in exchange for more equity or a higher rate. Lenders also check your debt-to-income ratio to make sure you can carry the new payment. If your score needs work, start with our steps to improve your credit score.
Worked example: borrowing $50,000 both ways
Let’s compare a $50,000 balance using the October averages. These figures are simplified: they leave out closing costs and fees, and they assume the HELOC rate holds steady unless noted.
| Scenario | Monthly payment | Total interest |
|---|---|---|
| 15-year home equity loan at 8.76% fixed | $500 | About $40,000 |
| 10-year home equity loan at 8.77% fixed | $627 | About $25,260 |
| HELOC at 7.36%, interest-only for 10 years | $307 | $36,800 during the draw period alone |
| Same HELOC, then 20-year repayment at 7.36% | $399 | About $82,450 over 30 years in total |
| HELOC at 7.36%, paid off on a 15-year schedule | $460 | About $32,720 |
Three lessons jump out:
- Interest-only payments are expensive over time. Making only the minimum on a HELOC for 10 years costs $36,800 in interest without reducing your balance at all. Stretched over 30 years, total interest tops $82,000.
- The payment jumps when the draw period ends. Even at the same rate, the monthly bill rises from about $307 to about $399. If the rate climbs two points to 9.36%, the interest-only payment would be about $390, and the repayment-period payment about $462.
- A HELOC is cheaper only if its rate stays lower. Paid down on a 15-year schedule, the HELOC saves about $7,300 compared with the 15-year loan, but only if its average rate stays below the loan’s 8.76% fixed rate. That’s a bet on future interest rates.
Run your own numbers with our loan calculator.
Smart move: If you choose a HELOC, pay principal from the start, even when the lender only requires interest. Paying it like a 15-year loan in our example keeps your payment around $460 and avoids a payment shock later.
Pros and cons
Home equity loan
- Pros: fixed rate and payment; clear payoff date; protection if rates rise.
- Cons: higher average rate right now; interest on the full amount from day one; closing costs; you’d need a new loan to borrow more.
HELOC
- Pros: lower average starting rate; pay interest only on what you use; reusable during the draw period; often lower upfront costs.
- Cons: variable rate; payment shock when repayment starts; temptation to overspend; the lender can freeze the line.
Both share the biggest risk: your home secures the debt. If you can’t pay, you could face foreclosure. That’s why using home equity for vacations or everyday spending is usually a poor trade.
Tax rules: when the interest is deductible
Interest on a home equity loan or HELOC is deductible only if you use the money to buy, build or substantially improve the home that secures the loan, and only if you itemize deductions. Using it to pay off credit cards or buy a car doesn’t qualify. The total mortgage debt eligible for the deduction is capped at $750,000 ($375,000 if married filing separately), a limit the 2025 tax law made permanent. Keep receipts for improvement projects, and check IRS Publication 936 or a tax professional for your situation.
Alternatives worth comparing
- Cash-out refinance. Replaces your mortgage with a larger one. It can make sense if current mortgage rates are near or below your existing rate. If you locked a much lower rate years ago, refinancing your whole balance can cost far more than borrowing only the extra amount. Compare options in our guide to mortgage types and with our mortgage calculator.
- Personal loan. No collateral, so your home isn’t at risk, but rates are usually higher. See our guide to personal loans.
- Debt consolidation loan. If your goal is paying off cards, compare a secured home equity loan with an unsecured debt consolidation loan before putting your house on the line.
How to choose and apply
- Define the need. One known cost points to a home equity loan. Staged or uncertain costs point to a HELOC.
- Check your equity. Estimate your CLTV using a realistic home value.
- Pull your credit. Fix errors before you apply, since a few points can change your rate.
- Get at least three quotes. Include banks, credit unions and online lenders. Compare APR, fees, draw and repayment terms, and any rate caps.
- Stress-test the payment. For a HELOC, calculate the payment at today’s rate plus two to three points.
- Read before you sign. For a loan on your primary home, federal law gives you three business days after closing to cancel.
Frequently asked questions
Is a HELOC or home equity loan better right now?
It depends on how you’ll use the money. As of Oct. 21, 2026, HELOCs averaged 7.36% versus about 8.77% for 10-year home equity loans, so HELOCs start cheaper. But HELOC rates are variable. If you want a fixed payment for a single expense, a home equity loan is the safer choice.
What credit score do you need for a HELOC or home equity loan?
Many lenders look for a score around 680 or higher, and the best rates usually go to borrowers with scores in the 700s or above. Some lenders accept lower scores if you have more equity and a solid income.
Can I convert a HELOC to a fixed rate?
Some lenders offer a fixed-rate option that lets you lock all or part of your balance. Terms and fees vary, so ask before you open the line.
What happens when a HELOC draw period ends?
You can no longer borrow, and your payment switches to principal plus interest, usually over about 20 years. If you only paid interest before, your monthly payment can rise sharply even if rates don’t change.
Can I pay off a home equity loan or HELOC early?
Usually, yes. Some lenders charge prepayment or early-closure fees, often if you close a HELOC within the first few years. Check the agreement for these terms.
For more borrowing tools, browse our full list of free calculators.
Sources: Bankrate HELOC and home equity loan rate surveys (as of Oct. 21, 2026); Federal Reserve FOMC statement (Oct. 28, 2026); IRS Publication 936 and the 2025 tax law’s mortgage interest provisions; CFPB guidance on HELOCs and Regulation Z. Payment figures were calculated by FinInfoBlog and exclude fees. This article is for educational purposes and isn’t financial advice.