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Home equity loan vs. line of credit

Tap the equity you've built in your home for major or ongoing expenses.

Chances are, your home is your biggest financial asset. As you pay down your mortgage, you build equity that you can then put to work through a home equity loan or HELOC.

Both loans use your home as collateral, which can be a powerful motivator for timely repayments. But how you access your cash depends on the loan you choose.

How do home equity loans and lines of credit compare?

Both loans offer unrestricted financing, or money that you can use for any purpose, backed by the equity in your home. And how much you can borrow typically tops out at 80% to 95% of your home equity, depending on your credit score.

But they differ in how you access your equity and pay back what you borrow.

Home equity loan

A home equity loan allows you to tap into the equity of your home to borrow a lump sum of cash. Home equity loans typically have a fixed interest rate and schedule. This means you’ll pay a set amount each month for the life of the loan — usually five to 15 years. Depending on your lender, you may be able to get an adjustable-rate loan. Because you’re taking out a second loan against your home, home equity loans are often called second mortgages. And you’ll need to repay your existing mortgage while also repaying the home equity loan. A fixed-rate makes for reliable repayment amounts, which can be easier to factor into your budget. But the tradeoff is that the rates tend to be higher than HELOCs.

Home equity line of credit

A HELOC is a lot like a credit card. Rather than loaning you a lump sum to repay over time, a HELOC authorizes access to a set line of credit. In most cases, a HELOC allows you to borrow up to 80% of your home’s equity. You can borrow against that amount as many times as you need to during a draw period of five to 10 years, depending on your loan. You pay interest only on the amount you draw. And if you’re able, you can pay extra to contribute toward the principal of your borrowed amount.HELOCs come with variable interest rates that rise and fall as the market fluctuates — which means your monthly payment can go up or down too. Some lenders let you convert a portion of your balance to a fixed rate, while others limit how many times the interest rate can change during the loan, called a lifetime cap. When the draw period is over, you enter the loan’s repayment period, which typically lasts 10 to 25 years. During that time, you can’t take out any new funds, focusing instead on repaying what you’ve borrowed.

Home equity loansHELOCs
Typical eligibility
  • At least 15% equity in home
  • Up to 50% debt-to-income ratio
  • 620 or higher credit score
  • Ability to repay based on income, assets, monthly expenses and credit history
  • At least 20% equity in home
  • Up to 50% debt-to-income ratio
  • 620+; 720+ for the strongest rates
  • Ability to repay based on income, assets, monthly expenses and credit history
Interest rateFixedVariable, though some lenders allow conversion to a fixed rate
Access to fundsLump-sum paymentWithdraw money as you need it, paying interest on the amount you draw
Use of fundsNo restrictionsNo restrictions
Term lengthsTypically 5 to 15 yearsDraw period: Typically 5 to 10 years
Repayment period: Typically 10 to 25 years
Closing costsYesVaries
CollateralHomeHome
Apply
Learn more about Home Equity loans

Learn more about line of credit loans

Choose a home equity loan if you …

  • Need money for a one-time expense.
  • Want predictable payments with fixed interest rates.
  • Have at least 15% equity in your home and a credit score of at least 620.

Choose a home equity line of credit if you …

  • Expect your expenses to increase over time.
  • Want flexible access to your money.
  • Need credit approval quickly.

Compare home equity loan and HELOC options

Compare these lenders and lender marketplaces by the type of home equity product you're searching for, state availability and minimum credit score. Select See rates to provide the company with basic property and financial details for personalized rates.
Name Product Loan products offered State availability Min. credit score
SoFi
(NMLS #1121636)
SoFi
Conventional, Home equity, Refinance
Not available in: HI, MO, NM, NY, WV
620
No hidden fees, multiple loan terms, and member discounts available.
Figure
(NMLS #1717824)
Figure
HELOC
Not available in: DE, HI, KY, MD, NY, SC, TX, UT, WV
620
Speedy prequalification, minimal fees and a wide range of loans and terms with this HELOC lender.
LendingTree
(NMLS #1136)
LendingTree
HELOC, Home Equity loans
Available in all states
620
Connect with vetted lenders quickly through this free online marketplace.
Hometap Equity Partners
Hometap Equity Partners
Home equity investment
Only available in: AZ, CA, FL, MA, MD, MI, MN, NC, NJ, NY, OR, PA, VA, WA
600
Sell a portion of your home's equity for cash without monthly payments or hurting your credit score.
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Compare up to 4 providers

Bottom line

If you need cash, you may be able to use your home as collateral with a home equity loan or line of credit. Home equity loans are best for financing a project with a fixed cost, while HELOCs give you flexible access to your money over time.

Borrowing against the equity in your home is not a decision to be taken lightly. Before committing, compare home loan lenders and weigh the benefits against any drawbacks.

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