HELOC vs home equity loan
A home equity line of credit (HELOC) is a revolving line you draw on as you need it, at a variable rate. A home equity loan, also called a fixed-rate second mortgage, pays one lump sum at closing, repaid in equal monthly payments at a rate that does not change. With both, your first mortgage stays exactly as it is.
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Fidelity Residential · NMLS #103098 · Equal Housing Lender
A line you draw on, or one sum at a fixed rate
Both borrow against the equity in your home, and with both your first mortgage stays exactly as it is. The difference is how the money comes and how the rate works.
A HELOC is a revolving line, up to a limit set from your equity. During the draw period you draw what you need, repay and draw again, and the required payment covers the interest on what you have drawn. The rate is variable and moves with a published index, so the payment can change. When the draw period ends, a repayment period begins and the balance is paid down.
A home equity loan pays the whole amount at closing. You repay it in equal monthly payments at a rate that does not change, over a term set at the start. There is no draw period, no revolving balance and no variable rate.
At a glance
- HELOC: a revolving line at a variable rate; draw as you need it
- Home equity loan: one lump sum at closing, at a fixed rate, repaid in equal monthly payments
- Both: sit behind your first mortgage, which stays as it is; available on a primary residence, a second home and, in some programs, a rental
HELOC and home equity loan compared
The questions that separate the two ways to borrow against your home without replacing your mortgage.
| Question | HELOC | Home equity loan |
|---|---|---|
| How you get the money | A line you draw on as you need it: draw, repay and draw again during the draw period; most programs ask for a large first draw at closing | One lump sum at closing |
| The rate | Variable, moving with a published index, so the payment can change | Fixed: a rate that does not change |
| What you repay | During the draw period the required payment covers the interest on what you have drawn; then a repayment period, when the balance is paid down | Equal monthly payments over a term set at the start |
| Your first mortgage | Stays as it is; the line sits behind it, or can be a first lien on a home you own outright | Stays exactly as it is; the loan sits behind it |
| Often a fit for | Costs that come in stages, such as a renovation paid as the work is done | A known cost, such as a project with a fixed price or debts to combine |
| The home | A primary residence, a second home and, in some programs, a rental; not a manufactured home | A primary residence, a second home and, as a business-purpose loan, a rental; not a manufactured home |
| Income | Pay stubs, W-2s or tax returns, or bank statements if you are self-employed; some programs use payroll or bank data links, and one lets retirement-type assets count as income | Tax returns and pay stubs, or, in some programs, bank statements, 1099s, a prepared profit-and-loss statement, verified assets or the rental income of an investment property |
| Valuation | Some lines need no appraisal: an automated valuation is enough on smaller lines; larger lines get a full appraisal | Smaller loans may need only an automated valuation with a property inspection; larger loans get a full appraisal |
| When | On its own, or at the same closing as a new first mortgage; no ownership seasoning in some programs | On its own after you have owned the home, or at the same closing as a new first mortgage; no ownership seasoning in some programs |
Both loan pages show the programs' credit and amount figures, dated: HELOC requirements and home equity loan requirements.
When a HELOC fits better
When you want to borrow as you go and keep your first mortgage.
- Costs come in stages. A renovation paid as the work is done fits a line you draw on as you go.
- You want to draw again. During the draw period you can repay and draw again.
- You are buying or refinancing now. A line can be opened at the same closing as a new first mortgage, and some programs need no ownership seasoning.
- You own the home outright. A line can be a first lien on a home you own with no mortgage.
When a home equity loan fits better
When you know the cost and want a payment that does not change.
- A known cost. A project with a fixed price, or debts to combine, where a set payment is easier to plan around than a variable one.
- A rate that does not change. Equal monthly payments at a fixed rate, over a term set at the start.
- Self-employed. Some programs document income with bank statements, 1099s, a prepared profit-and-loss statement or verified assets.
- A rental property. A home equity loan on a rental is a business-purpose loan with its own terms.
How to choose between them
Price the need
A cost that comes in stages points to a line; a known cost points to one lump sum.
Decide on the rate
A variable rate can change your payment; a fixed rate keeps it the same.
Keep or replace your mortgage
Both keep your first mortgage. If you would rather replace it with one larger loan, compare a cash-out refinance.
Compare loan estimates
Ask for a loan estimate on each for the same home; it shows the rate, the APR and every cost in dollars.
Questions about HELOCs and home equity loans
Is a home equity loan the same as a HELOC?
No. A home equity loan gives you one lump sum at closing, repaid in equal monthly payments at a rate that does not change. A HELOC is a revolving line with a variable rate: you draw what you need during a draw period and the required payment covers the interest on what you have drawn. Both sit behind your first mortgage, which stays as it is.
Is a home equity loan the same as a second mortgage?
Yes, in the way most people use the words. A fixed-rate second mortgage, a home equity loan and a closed-end second are names for the same thing: one lump sum, behind your first mortgage, at a fixed rate.
Which suits a renovation?
It depends on how the costs come. Costs paid in stages, as the work is done, fit a line you draw on as you go. A fixed price from a contractor fits one lump sum with a set payment.
Does either one replace my first mortgage?
No. Both leave your first mortgage exactly as it is. A cash-out refinance is the option that replaces it with one new, larger loan.
Can I get one if I am self-employed?
Yes, at some programs. A HELOC can be documented with bank statements if you are self-employed, and some home equity loan programs accept bank statements, 1099s, a prepared profit-and-loss statement or verified assets.
Can I get one at the same time as I buy or refinance?
Yes, at some programs. Either can be arranged at the same closing as a new first mortgage, and some programs need no ownership seasoning, so it can also be arranged soon after buying.
Do you lend in my state?
Fidelity Residential is licensed in many states. The full, current list is on NMLS Consumer Access (opens in a new tab), or call us at 732-686-9999.
Not sure which way to tap your equity?
Get a quote, apply online, or ask a licensed loan officer to lay a line of credit and a home equity loan side by side.
This page is general information, not a commitment to lend. Programs, terms and eligibility depend on credit, income, property and underwriting review and are subject to change without notice.
Reviewed by Robert Shamie, CEO, NMLS #241428 · Last reviewed:
Fidelity Residential (PFN Lending Group, Inc., NMLS #103098) is a direct mortgage lender licensed in 40 states and the District of Columbia, with 26 years in business.