What is the difference between a HELOC and a home equity loan?

A home equity loan is a fixed lump sum repaid at a fixed rate over a set term — the payment never changes. A HELOC is a revolving credit line with a variable rate: you draw funds as needed, usually make interest-only payments during a draw period, then repay the balance over a repayment period. Home equity loans suit a single known expense; HELOCs suit ongoing or uncertain costs.

Which one has a lower monthly payment?

During a HELOC's draw period, the interest-only payment is almost always lower than a home equity loan payment — but it reduces none of your balance. Once the draw period ends, the HELOC payment can exceed the fixed loan payment, especially if rates have risen. Compare the repayment-period payment, not just the draw payment.

What is HELOC payment shock?

Payment shock is the jump in your monthly payment when a HELOC's interest-only draw period ends and the balance begins to amortize as principal plus interest. On a typical line the payment can rise substantially overnight. Because HELOC rates are variable, the jump is larger if the prime rate has increased since you opened the line.

Are HELOC and home equity loan interest rates fixed?

A home equity loan rate is fixed for the life of the loan. A HELOC rate is variable — it is tied to the prime rate plus a margin and moves when the Fed changes rates. Some lenders offer fixed-rate lock options on a portion of a HELOC balance. This calculator lets you stress-test a HELOC rate increase to see the effect.

Should I choose a HELOC or a home equity loan?

Choose a home equity loan when you have a single, known expense and want payment certainty. Choose a HELOC when you need flexible access to funds over time and can absorb rate variability. If total cost is close, weigh the value of the HELOC's flexibility against the certainty of a fixed payment. This is an estimate, not financial advice — confirm terms with lenders.

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HELOC vs. Home Equity Loan Calculator — Which Costs Less?

Borrow the same amount two ways and compare them side by side: a fixed-rate home equity loan versus a variable-rate HELOC. See the monthly payment, total interest, and the payment shock when a HELOC draw period ends.

Home Equity Loan — Monthly Payment (Fixed)

$485

Inputs

Amount You Want to Borrow

Use the same figure for both options — apples to apples

$5,000$500,000

Home Equity Loan Rate — Fixed (%)

Fixed for the life of the loan — never changes

4%16%

Home Equity Loan Term

HELOC Rate — Variable, Today (%)

Variable rate tied to prime — moves with the Fed

4%16%

HELOC Draw Period — Interest-Only (years)

Interest-only payments here pay down none of the balance

315

HELOC Repayment Period (years)

The balance amortizes as principal + interest over this term

525

Home Equity Loan — Monthly Payment (Fixed)

$485

Home Equity Loan — Total Interest

$37,313

HELOC — Monthly Payment During Draw (Interest-Only)

$354

HELOC Payment Jump at End of Draw Period

$183

HELOC — Estimated Total Interest (Stressed)

$89,214

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Coach Insight

Both tap your home equity, but they behave very differently. A home equity loan is a fixed lump sum at a fixed rate — predictable from day one. A HELOC is a revolving line at a variable rate, with low interest-only payments during the draw period that pay down none of the balance. When the draw period ends, the payment can jump sharply as the full balance amortizes — often at a higher rate than when you started. The flexibility of a HELOC has real value, but so does knowing what it can cost.

Frequently Asked Questions

Everything you need to know.

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Why This Matters

How to Use It

1Enter the amount you want to borrow — the calculator uses the same figure for both options
2Set the fixed home equity loan rate and term
3Set today's HELOC rate, the draw period, and the repayment period
4Add a rate-stress assumption to see how a variable HELOC behaves if rates rise
5Compare the monthly payments, the payment shock, and the total interest difference

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