The 30-second answer
HELOC = a credit card secured by your house. Variable rate. You draw as needed over a 10-year period, then repay over 20.
Home equity loan (HEL) = a second mortgage. Fixed rate, fixed payment, lump sum at close.
Pick a HELOC when you want flexibility (ongoing renovation, emergency reserve). Pick a HEL when you want certainty (a defined project with a known cost).
Side by side
| HELOC | Home Equity Loan | |
|---|---|---|
| Rate type | Variable (Prime + margin) | Fixed |
| Disbursement | Revolving credit line | Lump sum at close |
| Draw period | Typically 10 years | n/a — single advance |
| Repayment period | Typically 20 years after draw | 10–30 years from close |
| Typical 2026 rate | ~8.0–9.5% | ~8.5–9.75% |
| Closing costs | $0–$500 (often waived) | $1,500–$3,500 |
| Payment shape | Interest-only allowed during draw | Fully amortizing from day 1 |
| Best for | Flexibility, optionality | Defined project, payment certainty |
When a HELOC wins
- Ongoing or unknown costs. Multi-phase renovation. Adoption fees. College tuition over four years.
- You want a "just in case" facility. Many San Diego homeowners open a HELOC and never draw — they pay zero interest and have a six-figure safety net if life happens.
- You expect rates to fall. A variable rate benefits if Prime drops.
- You'll repay quickly. Variable risk shrinks the shorter you hold the balance.
When a HEL wins
- One known project. A $120K kitchen remodel with a fixed contractor bid.
- Debt consolidation. Convert variable-rate cards to a fixed-rate, fixed-term payoff. The certainty is the whole point.
- You expect rates to rise. Locking a fixed rate protects against further Fed hikes.
- You want forced amortization. A HELOC can let you carry a balance interest-only for a decade. A HEL forces you to actually pay it down.
HELOC payments often jump dramatically when the draw period ends. A $200K balance at 9% interest-only is ~$1,500/mo. The same balance amortized over 20 years (the repayment period) jumps to ~$1,800. Plan for the recast.
The hybrid: fixed-rate advance HELOCs
Some lenders let you carve a chunk of your HELOC balance into a fixed-rate term loan within the line — getting you HEL-like certainty on a portion while keeping the rest variable. Worth asking about if you want both.
Tax treatment
Interest on home equity debt used for "buying, building, or substantially improving" the home is generally deductible (subject to overall mortgage debt limits). Interest used for non-housing purposes (debt consolidation, vacation, tuition) is not deductible after the 2017 tax law change. Confirm with your CPA.