Two ways to access your home equity — a lump-sum home equity loan or a flexible HELOC credit line. Here is a complete comparison of costs, structure, and best use cases.
Two ways to access your home equity — a lump-sum home equity loan or a flexible HELOC credit line. Here is a complete comparison of costs, structure, and best use cases.
Feature
Home Equity Loan
HELOC
Rate Type
Fixed
Variable (Prime + margin)
Current Rates
8.0%–9.5%
8.5%–10%
Funds Structure
Lump sum at closing
Revolving credit line
Draw Period
None (full disbursement)
10 years (interest only)
Repayment Period
5–30 years, fixed payment
20 years after draw period
Max LTV
85–90%
85–90%
Closing Costs
2–3% (some waived)
2–3% (often waived)
Best For
Single large expense
Ongoing/uncertain expenses
Tax Deductible?
If for home improvement
If for home improvement
When to Choose a Home Equity Loan
One large, defined expense (kitchen remodel, debt consolidation)
Want predictable fixed payment
Uncomfortable with variable rate risk
Borrowing full amount at once makes sense
When to Choose a HELOC
Multiple draws over time (phased renovation)
Emergency fund / safety net (only pay if you draw)
Short-term borrowing (can pay down quickly)
Uncertain total need (draw only what you use)
HELOC Rate Risk
HELOCs are tied to Prime rate (currently 8.5%). If Prime rises 1%, your HELOC rate rises 1%. Budget for rate volatility. Many HELOCs offer introductory fixed rates for 6–12 months before converting to variable.
Frequently Asked Questions
Home equity loan rates currently range from 8.0%–9.5% for well-qualified borrowers. HELOC rates range from 8.5%–10.0% (variable, tied to Prime rate). Rates vary significantly by lender, credit score, LTV, and loan amount. Credit unions often offer rates 0.5–1% lower than large banks.
HELOC interest is tax deductible only when the funds are used to 'buy, build, or substantially improve' the home securing the loan (per IRS rules post-2017 Tax Cuts and Jobs Act). Using a HELOC for debt consolidation, education, or other non-home purposes eliminates the deduction. Consult a tax advisor for your specific situation.
Disclaimer: Smart Mortgage Guide provides educational content only. We are not a licensed mortgage lender, broker, or financial advisor. Rates, limits, and program details are subject to change. Always consult with a licensed mortgage professional before making financial decisions.