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Home Equity Loans

Home equity loan vs. HELOC: Which is right for you?

May 05, 2026

Written by

Brittney Myers

Reviewed by

Jill Cornfield

Key takeaways:

A home equity loan gives you a fixed amount upfront with predictable monthly payments.
A HELOC is a revolving line of credit you can use repeatedly during a draw period.
Both options are mortgages guaranteed by your home.

You've worked hard to build equity in your home, and now you're ready to put that equity to good use. You know your options are a home equity loan or a home equity line of credit (HELOC), but you're not sure which is the right option.

Both are secured by your home, with borrowing limits based on your equity. The core difference between a home equity loan vs. HELOC comes down to how you receive and repay the funds:

A home equity loan is a one-time lump sum, usually at a fixed interest rate, repaid with equal monthly payments over a set term.
A HELOC is a revolving credit line that lets you borrow, repay, then borrow again, as often as you like up to your credit limit during the draw period. After that, the repayment period starts and you can't borrow any more.

Each has pros and cons depending on your needs and situation. Let's go over how each works and how to choose the right one for you.

How a home equity loan works

A home equity loan is a one-time installment loan. If approved, you'll get the full amount as a lump sum at closing. Then, you repay it with regular monthly payments over a set term—often five to 30 years.

Most home equity loans have a fixed interest rate, so your rate will stay the same for the life of the loan. This means your monthly payments won't change, either.

Want to know more details? Try our guide: How does a home equity loan work?

How a HELOC works

A home equity line of credit (HELOC) is a revolving line of credit. If approved, you get a set credit limit you can borrow against. Most lenders have an initial draw requirement that could be as low as $500 or as high as your full credit limit.

You can borrow, repay, and borrow again up to your credit limit over and over again during the first years. This is called the draw period, and it generally lasts the first five to 10 years depending on your lender and loan terms.

During the draw period, payments are based on the amount you’ve borrowed, not the full credit limit. After the draw period ends, the repayment period begins. At that point, you’ll start making equal monthly payments for the duration of your loan term.

HELOCs typically carry variable interest rates, meaning your payment amount could change over time as interest rates shift. Achieve Loans offers fixed-rate HELOCs, which could make payments more predictable.

Ready to learn more? For a deeper dive, check out our guide on how a HELOC works.

Key differences at a glance

	Home equity loan	Home equity line of credit (HELOC)
Loan structure	Lump-sum loan	Revolving credit line
Interest rates	Fixed rate	Variable or fixed rate
Repayment terms	Fixed monthly payments	Varies based on balance, may have interest-only option
Access to funds	Receive full amount upfront	Minimum initial draw, then borrow repeatedly
Closing costs	May have higher closing costs	Generally lower

Which option fits your situation?

A home equity loan could be the better fit if you:

Have a specific, known expense
Know exactly how much you need to borrow
Prefer fixed monthly payments

A HELOC could be the better fit if you:

Have ongoing or phased expenses
Aren’t certain of the exact amount you need
Want to be able to borrow, repay, and borrow again over time

Generally, a home equity loan provides more stability because of the fixed interest rate and regular monthly payments. You could potentially get the best of both worlds by choosing a fixed-rate HELOC like the one offered through Achieve Loans.

If you’re ready to get started, check your rate without any impact to your credit.

What you need to apply for a home equity loan or HELOC

Lenders for both loan types have similar general requirements. If you apply for a home equity loan or a HELOC, most lenders typically prefer:

At least 20% equity in your home
A credit score of at least 600
A debt-to-income ratio (DTI) of 43% or lower
Proof of steady income

How much you can borrow will be largely based on your home equity. Most lenders like you to maintain 15% to 20% equity—including the home equity loan or HELOC. Lenders use a metric called the combined loan-to-value ratio (CLTV) to determine your maximum borrowing amount.

To get your CLTV, add up all the loans against your home and then divide that amount by the market value. Multiple by 100 for the percentage.

For example: Say your home is worth $500,000, you owe $300,000 on your mortgage, and you want a $50,000 home equity loan. Your CLTV would be:

$300,000 + $50,000 = $350,000

$350,000 / $500,000 = 0.70

0.70 x 100 = 70%

Lenders usually have a max CLTV of 80% to 85%, though some may have higher caps.

What a HEL and HELOC have in common

They have differences, but home equity loans and HELOCs share many similarities. Both types of loan:

Use your home as collateral, meaning it secures the loan. If you default on a HELOC or home equity loan, you could lose your home.
Are second mortgages if you already have a primary mortgage. Neither replaces your existing mortgage, so you'll pay your home equity loan on top of your current mortgage payments.
Usually carry lower interest rates than unsecured debt such as credit cards.
Typically involve closing costs, 2% to 5% of the loan amount on average.
Could have tax-deductible interest if the funds are used for qualifying home improvements. Speak with a tax professional for details specific to your situation.

Both home equity loans and HELOCs can be smart ways to put your home equity to work. The right one to choose will depend on your situation. In either case, make sure you have a solid plan in place to repay what you borrow to protect your home.

Author Information

Written by

Brittney Myers

Brittney is a personal finance expert and credit card collector who believes financial education is the key to success. Her advice on how to make smarter financial decisions has been featured by major publications and read by millions.

Reviewed by

Jill Cornfield

Jill is a personal finance editor at Achieve. For more than 10 years, she has been writing and editing helpful content on everything that touches a person’s finances, from Medicare to retirement plan rollovers to creating a spending budget.

Home Equity Loans

Frequently asked questions: Home equity loan vs. HELOC

With a $50,000 home equity loan, you receive the full amount at closing as a one-time loan. Repayment begins immediately at a fixed interest rate, and your monthly payment stays the same for the life of the loan. With a $50,000 HELOC, you can borrow, repay, and borrow again, up to $50,000, as often as you like during the draw period. You repay what you have borrowed, and payments could change during the draw if your balance fluctuates, and during repayment if the HELOC carries a variable interest rate.

Both types of loan have similar requirements, including:

At least 20% home equity
A DTI at or below 43%
Credit score of at least 600
Regular income

A HELOC that offers interest-only payments during the draw period may be slightly easier to get since the initial monthly payments would be lower and have less impact on your debt-to-income ratio (DTI). Interest-only payments won't lower your principal, so you'll likely pay more over the life of the loan.

Yes, you could refinance a HELOC with a home equity loan—or vice versa—as long as you qualify for the new loan. Refinancing a variable-rate HELOC with a fixed-rate home equity loan could be a way to stabilize your payments. Alternatively, you could consider getting a fixed-rate HELOC such as those offered through Achieve Loans.