A home equity loan and a HELOC (home equity line of credit) both borrow against the equity in your house. Both are secured—miss payments and the lender can move toward foreclosure. This page is a shallow map for remodel and other large uses, not a full mortgage-shopping guide. For project sequencing and contractor pressure, use Paying for home improvements and the home improvement vertical.
Loan vs line at a glance
| Home equity loan | HELOC | |
|---|---|---|
| Structure | One lump sum at closing | Revolving line; draw what you need in the draw period |
| Rate shape | Often fixed APR and fixed payment | Often variable during draws; some offer fixed-rate conversion locks |
| Best fit | Known one-time cost (roof, consolidation of a fixed amount) | Phased project or uncertain total |
| Collateral | Your home (second lien in many cases) | Your home |
| Closing costs | Appraisal, title, fees—ask for a Loan Estimate–style breakdown | Similar friction; annual fees possible |
Either product is a form of secured vs unsecured borrowing. An unsecured personal loan or cash from savings leaves the house off the lien list but usually costs more in APR.
When a home equity loan fits
- The contractor bid is firm and you will not need more draws
- You want a predictable monthly payment for household budgeting
- You are consolidating a known balance and will not reopen the tap
- You compared total interest and fees against a personal loan using Comparing financing offers
When a HELOC fits
- Remodel phases span months (demo, then finishes) and you hate paying interest on unused cash
- You want a standby line for true emergencies and you have the discipline not to spend it on lifestyle
- You understand variable-rate risk if the Fed hiking cycle (or your index) moves payments up
HELOCs from banks and credit unions (examples shoppers compare: local credit unions, Bank of America, Wells Fargo, online specialist HELOC lenders—terms change) often advertise low intro rates. Read the post-intro index, margin, ceiling, and whether interest-only draws balloon later.
Worked example
Priya needs a $28,000 kitchen update with a signed bid. Options after soft shopping:
- Home equity loan: $28,000 at 8.5% fixed, 10 years → payment about $348/month; total interest roughly $13,700 if held full term (illustrative amortization).
- HELOC: $40,000 line at prime + 1% (say 9.5% variable); she draws $28,000 over four months. If rates rise 1 point during the project, interest cost climbs; if she only draws what each invoice needs, she avoids interest on the idle $12,000 of line.
Priya picks the fixed home equity loan because the bid is locked and she wants payment certainty. If her project were “open walls, then decide finishes,” the HELOC’s draw flexibility would have mattered more. Either way she keeps a cash buffer so a rate or repair shock does not empty emergency reserves.
Risks that are not fine print trivia
- Your house is collateral. This is not store-card debt.
- Closing costs and appraisals can erase a small “rate win” on a short payoff—run net cost.
- CLTV limits — lenders cap combined loan-to-value (LTV); recent cash-out or soft prices can shrink approval.
- Tax deductibility of interest is narrow and rule-dependent (IRS Pub 936 territory)—do not assume remodel interest is deductible without checking current rules or a tax pro.
- Contractor + same-day HELOC pressure — slow down; see the home improvement red-flag notes.
Escrow for taxes and insurance on the first mortgage is separate from HELOC billing—How escrow works for homeowners.
Checklist
- Confirm equity cushion and first-mortgage balance before you apply.
- Get a written project scope and cash price before any lien paperwork (windows/roof tablet plans: How to compare window and roof financing).
- Soft-compare a fixed home equity loan, a HELOC, and an unsecured alternative on total cost.
- Ask: fixed vs variable, fees, draw period, repayment period, prepayment penalty or early-closure clawback.
- Keep emergency savings intact; do not fund the down payment of a lifestyle upgrade with your last reserve.
- Hard-apply only when you are ready—see Hard vs soft credit checks.
Educational only. Not mortgage, tax, or credit advice, or an offer of credit. Home-equity products are secured by your home; foreclosure risk is real. Terms vary by lender and state.