HELOC vs Home Equity Loan: What Is the Difference?
A HELOC (home equity line of credit) is a revolving credit line secured by the equity in a home, while a home equity loan delivers a single lump sum repaid in fixed installments. Both borrow against the same asset, yet they hand over money, charge interest, and structure repayment in very different ways.
HELOC vs Home Equity Loan at a glance
| Aspect | HELOC | Home Equity Loan |
|---|---|---|
| What it is | A revolving line of credit secured by home equity | A lump-sum loan secured by home equity |
| How funds arrive | Drawn as needed during a set draw period | Single disbursement at closing |
| Interest rate | Typically variable | Typically fixed |
| Interest accrues on | Only the balance actually drawn | The full loan amount from day one |
| Repayment structure | Draw period first, then a repayment period | Fully amortized payments from day one |
| Lien position | Commonly a second mortgage | Commonly a second mortgage |
How they differ in practice
The heart of the HELOC vs home equity loan distinction is how money reaches the borrower. A HELOC works like a credit card secured by the house: the lender approves a maximum credit line, and the borrower draws funds as needed during a draw period that commonly runs several years. Interest accrues only on the amount actually drawn, so an untouched line costs little or nothing in interest. A home equity loan pays out the entire amount at closing, and interest accrues on the full balance from day one.
Repayment follows the same split. Many HELOCs allow smaller, sometimes interest-only, payments during the draw period, then convert to principal-and-interest payments for a set repayment period. Because the rate is typically variable, the payment can move over time. A home equity loan amortizes from the first month at a rate that is typically fixed, so the payment generally stays level for the life of the loan. In the home equity line of credit vs home equity loan comparison, the similarities matter too: both are secured by the borrower's equity, and both are commonly recorded as second mortgages behind the primary loan.
Full definitions
Read the complete dictionary entry for Home Equity Line of Credit or Home Equity Loan.
Frequently asked questions
Are a HELOC and a home equity loan both second mortgages?
Usually, yes. When either product sits behind an existing first mortgage, it is recorded as a second lien, which is why both are commonly described as second mortgages. On a home with no other mortgage, either one can be recorded in first position instead.
How does a HELOC draw period work?
During the draw period, the borrower can pull money from the line up to the approved limit, repay it, and draw again as often as needed. Many HELOCs require only interest payments during this phase. When the draw period ends, the line closes to new borrowing and the outstanding balance is repaid over a set repayment period.
Can the payment on a HELOC or home equity loan change?
A HELOC payment can change for two reasons: the variable rate moves with its index, and the balance rises or falls as the borrower draws and repays. A home equity loan with a fixed rate keeps essentially the same payment from the first installment to the last.