HELOC vs. home equity loan — what's the difference?

A HELOC is a revolving credit line with a variable rate; a home equity loan is a one-time lump sum with a fixed rate and fixed payment. Choose HELOC for flexibility, home equity loan for predictability.

How long is the HELOC draw period?

Typically 5–10 years. During this time you can draw funds and pay interest only. After the draw period, you enter a repayment period (usually 10–20 years) where you pay principal and interest on the outstanding balance.

Can I get a HELOC if I still have a primary mortgage?

Yes — that's the most common scenario. The HELOC sits as a second lien behind your primary mortgage. You're approved based on your combined loan-to-value ratio.

Are HELOC interest rates fixed or variable?

Most HELOCs have variable rates tied to the prime rate plus a margin. Some lenders offer fixed-rate conversion options where you can lock in a portion of your balance at a fixed rate.

equity loan

HELOC

A Home Equity Line of Credit (HELOC) is a revolving credit line secured by your home's equity. You draw funds as needed during the draw period and repay flexibly — like a credit card backed by your house.

Down payment: N/A — based on existing equity (typically need 15%–20% remaining equity after the line)
Credit score: 680 typical; some lenders accept 660
Loan amount: Up to 85%–90% combined loan-to-value (CLTV) of home value
MI: None

Best for

Homeowners funding renovations in phases
Self-employed borrowers smoothing out cash flow
Investors using equity to fund a down payment on a new property
Borrowers who want access to funds but don't need a lump sum today
Short-term debt consolidation with a payoff plan

Eligibility

At least 15%–20% equity in your home after the new line
Credit score of 680+
DTI typically under 43%
Documented income (similar to a refinance)
Property appraisal or AVM

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The upside

Pay interest only on what you actually draw
Funds available for 5–10 years (the draw period)
Doesn't replace your existing mortgage — you keep your low first-lien rate
Can be repaid and re-borrowed during the draw period
Closing costs are typically lower than a cash-out refinance

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Worth considering

Variable interest rate tied to the prime rate — payments can rise
After the draw period ends, monthly payments jump to principal + interest
Your home is collateral — default risks foreclosure
Lender can freeze the line if home values drop

Documents you'll need

Two most recent pay stubs
Two years of W-2s and tax returns
Most recent mortgage statement
Current homeowners insurance declaration page
Property tax bill

When a HELOC beats a cash-out refinance

If your current mortgage has a low rate (say, you locked at 3% in 2020), do not refinance to access equity. A HELOC lets you tap your equity without losing that historically low first-lien rate.

The trade-off is the variable rate on the HELOC. As long as you have a payoff plan within a few years, or you’re putting the funds toward a high-return purpose like a down payment on an income property, a HELOC almost always wins the math.

Common questions

HELOC vs. home equity loan — what's the difference?: A HELOC is a revolving credit line with a variable rate; a home equity loan is a one-time lump sum with a fixed rate and fixed payment. Choose HELOC for flexibility, home equity loan for predictability.
How long is the HELOC draw period?: Typically 5–10 years. During this time you can draw funds and pay interest only. After the draw period, you enter a repayment period (usually 10–20 years) where you pay principal and interest on the outstanding balance.
Can I get a HELOC if I still have a primary mortgage?: Yes — that's the most common scenario. The HELOC sits as a second lien behind your primary mortgage. You're approved based on your combined loan-to-value ratio.
Are HELOC interest rates fixed or variable?: Most HELOCs have variable rates tied to the prime rate plus a margin. Some lenders offer fixed-rate conversion options where you can lock in a portion of your balance at a fixed rate.