HELOC vs. Home Equity Loan (HELOAN): A Simple Guide
A HELOC is a home equity line of credit. A HELOAN is a home equity loan. Both let you borrow against the value of your home, but they work very differently.
Last reviewed October 2026. Terms, rates, and fees vary a lot by lender, so use this as general background and ask lenders for their details.
What do the letters stand for?
The two names look alike, so they are easy to mix up. Here is what each letter means.
A borrowing limit secured by your home. You can borrow from it, pay it back, and borrow again, a bit like a credit card.
A one-time loan secured by your home. You get all the money at once and pay it back on a set schedule.
- Home. The house you own, which is the collateral for the loan.
- Equity. The part of your home you own: what it is worth minus what you still owe on your mortgage.
- Line of credit. A borrowing limit you can use as you need it, pay back, and use again.
- Loan. A set amount you receive once and pay back on a schedule.
HELOAN is informal shorthand. Lenders usually call it a home equity loan, and you may also see it written as HEL. They all mean the same thing. This guide uses “home equity loan” for the full name and HELOAN as the short form.
Both of these are second mortgages
A home equity loan and a HELOC are both loans secured by your home that sit behind your first mortgage, which is why they are called second mortgages. Your original mortgage stays in place, and you add a second loan with its own payment, rate, and costs, so you will make two mortgage payments each month. If you ever stop paying, either lender can start foreclosure, and the first mortgage is paid back first.
If you own your home outright, a home equity loan or HELOC would be your only mortgage and would sit in first position.
How much of your equity can you borrow?
Both products let you borrow against your equity, with your home as the collateral. Because they sit behind your main mortgage, your first mortgage stays exactly as it is.
Lenders generally let you borrow only part of your equity. A common limit is a total of about 80% to 85% of your home's value across all loans, and some lenders go higher. For example, if your home is worth $400,000 and you owe $250,000, borrowing up to 85% of its value ($340,000) would leave about $90,000 available.
The two main types
A home equity loan (HELOAN) gives you all the money at once. A HELOC (home equity line of credit) gives you a credit limit that you can borrow from as you need it.
| Home equity loan (HELOAN) | HELOC (line of credit) | |
|---|---|---|
| What it is | A second mortgage paid out as a lump sum | A second mortgage set up as a credit line |
| How you get the money | One lump sum at closing | A credit line you draw from as needed |
| Interest rate | Usually fixed | Usually variable, though some let you fix part of the balance |
| Monthly payment | The same amount every month | Often interest-only at first, then higher payments that include principal |
| You pay interest on | The full amount from the start | Only what you have borrowed |
| Time frame | A set term with a payoff date | A draw period, then a repayment period |
| Often a good fit for | A one-time cost where you know the amount | Costs spread over time, or an amount you are unsure of |
| Watch out for | Paying interest on money you do not need yet | Payments that rise when rates rise or when repayment starts |
Fixed vs. variable rates
With a fixed rate, your rate and your payment never change, which makes budgeting simple. Home equity loans are usually fixed.
With a variable rate, your rate moves with the market, usually tied to an index such as the prime rate plus a margin the lender sets. When rates go up, your payment goes up, and when they go down, it comes down. Most HELOCs are variable. Check whether there is a limit on how high the rate can go, and ask whether you can lock part of your balance at a fixed rate. Be cautious about low introductory rates that reset to a higher one.
Lump sum vs. drawing as you go
A lump sum is simple: you receive the money, you know your payment, and you know when the loan will be paid off. The trade-off is that you start paying interest on the whole amount right away, even if you will not use it all at once.
Drawing as you go is flexible. You borrow only when you need the money, and you pay interest only on what you have used. The trade-off is less predictability, since your rate can change and it is easy to borrow more than you planned.
How a HELOC works: the draw period and the repayment period
- Draw period (often about 10 years). You can borrow up to your limit, pay it down, and borrow again. Many HELOCs only require interest payments during this time, which keeps payments low but does not reduce what you owe.
- Repayment period (often 10 to 20 years). You can no longer borrow, and your payments now include principal as well as interest, so they usually go up. A few HELOCs require the full balance to be paid off at the end of the draw period instead.
Here is an example for illustration only. Suppose you have borrowed $50,000 at 8%. During the draw period, interest-only payments would be about $333 a month. When the repayment period starts and you pay it off over 15 years, the payment would be about $478 a month, roughly $145 more, and it could be higher if rates have risen. Planning for that jump ahead of time avoids a surprise.
Which one fits? It depends on how you will use the money
You need the money right away and know the amount
Often a home equity loanExamples: paying off credit cards or other debt in one step, or covering a large one-time purchase. A lump sum with a fixed rate gives you a payment that never changes and a clear payoff date.
Keep in mind: with debt consolidation, you are turning debt that is not tied to your home into debt that is. The lower rate only helps if the old balances stay at zero. If they build back up, you can end up owing more and risking your home. A cash-out refinance, which replaces your first mortgage instead of adding a second one, is another option worth comparing. It can make sense even with a higher rate if paying off high-rate debt frees up monthly cash flow that you send to principal, and it is sometimes the only option available when credit scores are lower.
You will need money over time, or are not sure how much
Often a HELOCExamples: a renovation done in phases, projects where costs can change, or a cushion you may or may not use. A HELOC lets you draw as each bill comes in and pay interest only on what you use.
Keep in mind: because the rate is usually variable, budget for payments that could rise. It also helps to have a plan for paying the balance down, and not to treat the line as everyday spending money.
A bit of both
Ask about optionsSome lenders offer a HELOC that lets you move part of your balance to a fixed rate, which can combine flexibility with a predictable payment on the portion you have fixed.
Costs and risks to know about
- Your home is the collateral. If you cannot make the payments, you could lose your home.
- You will have two mortgage payments. Your first mortgage payment stays the same, and the second mortgage adds its own payment on top of it.
- Second mortgages often cost more to borrow. Because a second mortgage lender is paid after your first mortgage if the home is sold in foreclosure, rates are often higher than on a first mortgage.
- Costs differ. Home equity loans often have closing costs, and HELOCs may have lower upfront costs but charge annual or other fees. Ask for every fee in writing.
- A lender can freeze or reduce a HELOC. If your home's value falls or your credit gets worse, the lender may limit how much you can borrow.
- Interest-only payments do not pay down the balance. You still owe the full amount when repayment starts.
- You use up equity. Equity is your cushion if you need to sell or if values drop, and you must repay these loans when you sell.
A note on taxes
Interest on a home equity loan or HELOC may be tax-deductible only when the money is used to buy, build, or substantially improve the home that secures the loan. It generally is not deductible when used for something like paying off credit cards. Tax rules change, so check with a tax professional.
Questions to ask a lender
- How will this second mortgage change my total monthly housing payment?
- Is the rate fixed or variable, and how much can it change?
- How long are the draw and repayment periods, and what will my payment be when repayment starts?
- What are all the fees, including closing costs, annual fees, and any fee for closing the line early?
- Can I fix part of a HELOC balance at a set rate?
- How much can I borrow compared with my home's value?
- Under what conditions can you freeze or lower my credit limit?
Home equity borrowing sits on top of your first mortgage, so your first mortgage rate and payment stay as they are. Not sure which way to go? Try the equity options tool. A lender can tell you what you actually qualify for, and it is worth getting quotes from more than one.