HELOC vs home equity loan: which way to borrow against your home?
A home equity loan gives you a lump sum, usually at a fixed rate, repaid in equal payments. A HELOC is a revolving line of credit you can draw on as needed during a draw period, usually at a variable rate, followed by a repayment period. The CFPB says both are secured by your home, so you could lose it if you can't repay. Payments on a HELOC can jump when the draw period ends.
Side by side
| Home equity loan | HELOC | |
|---|---|---|
| How you get money | One lump sum | Draw as needed, up to a limit |
| Rate | Usually fixed | Usually variable (index + margin); some offer fixed-rate portions |
| Payments | Fixed principal and interest | Can be interest-only during the draw period, then rise in repayment |
| Best for | One known expense | Ongoing or uncertain expenses |
| Main risk | Borrowing more than you need | Payment shock and rate increases |
Based on the CFPB's HELOC brochure and Ask CFPB.
What to ask about a HELOC
- How long are the draw and repayment periods, and what will the payment be when the draw period ends?
- Which index and margin apply, and what are the rate caps? Is there a minimum rate (floor)?
- Are there annual fees, inactivity fees, minimum draw amounts or early-closure fees?
- Can the lender freeze or reduce the line? (The CFPB notes lenders can do this in some circumstances, such as a significant drop in home value.)
- Is there a balloon payment at the end?
Comparing offers
For a home equity loan, compare the APR, fees and term. For a HELOC, the federal APR disclosure doesn't include fees the way a closed-end loan APR does, so compare the margin, fees and caps directly. Also weigh a cash-out refinance: it replaces your first mortgage, so it often makes the most sense when the new rate is close to or below your current rate.
You have a right to cancel
For most home equity loans and HELOCs on your primary home, federal law gives you three business days after signing to cancel (the "right of rescission"). The lender must explain how in writing.
Frequently asked questions
Is a HELOC rate fixed or variable?
Most HELOCs have a variable rate tied to an index plus a margin. Some lenders let you lock a fixed rate on part of the balance.
What happens when a HELOC's draw period ends?
You can no longer borrow, and you begin repaying principal and interest. Payments can rise sharply, especially if you made interest-only payments before.
Can I lose my home with a HELOC?
Yes. HELOCs and home equity loans are secured by your home, and the CFPB warns you could lose your home if you can't repay.
Can I cancel a home equity loan after signing?
For most loans secured by your primary residence, you have three business days after closing to cancel under the federal right of rescission.
Sources
- CFPB: Home equity loan vs HELOC (accessed October 29, 2026)
- CFPB: What you should know about HELOCs (PDF) (accessed October 29, 2026)
- CFPB: What other loans are similar to a HELOC? (cash-out refinance) (accessed October 29, 2026)
- CFPB: What is a loan-to-value ratio? (accessed October 29, 2026)
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