HELOC vs. Home Equity Loan: Complete Comparison Guide for 2025

With mortgage rates remaining elevated in 2025, many homeowners are looking to tap into their home equity without disturbing their existing mortgage. HELOCs and home equity loans offer two distinct paths to accessing your home's value, but which is right for you? This comprehensive guide breaks down everything you need to know to make an informed decision.

Understanding Home Equity: The Foundation

Before diving into the specifics of HELOCs and home equity loans, it's important to understand what home equity is and how it's calculated. Home equity is the difference between your home's current market value and the amount you still owe on your mortgage.

With record home price appreciation over the past few years, many homeowners are sitting on substantial equity. According to CoreLogic, the average homeowner gained approximately $32,000 in equity in 2024 alone, creating significant opportunities for those looking to access this wealth.

What Is a HELOC? Understanding Home Equity Lines of Credit

A Home Equity Line of Credit (HELOC) is a revolving credit line secured by your home that works similarly to a credit card. You can borrow against your approved limit, repay, and borrow again during the draw period, typically 10 years. After the draw period ends, you enter the repayment period (usually 10-20 years) when you can no longer borrow and must repay the outstanding balance.

Key Features of HELOCs

• Variable interest rates: Most HELOCs have variable rates tied to the prime rate, though some lenders offer fixed-rate options for portions of your balance.
• Flexible borrowing: Borrow only what you need, when you need it, during the draw period.
• Interest-only payments: Many HELOCs allow interest-only payments during the draw period, keeping initial payments lower.
• Ongoing access: Revolving access to funds for the duration of the draw period.
• Potential for rate increases: If interest rates rise, your payments may increase significantly.

What Is a Home Equity Loan? Understanding the "Second Mortgage"

A home equity loan is often called a "second mortgage" because it's a lump-sum loan secured by your home's equity, separate from your primary mortgage. You receive the entire amount upfront and repay it over a fixed term with fixed monthly payments.

Key Features of Home Equity Loans

• Fixed interest rates: Most home equity loans offer fixed rates, providing predictable monthly payments throughout the loan term.
• Lump-sum disbursement: You receive the entire loan amount at closing.
• Fixed repayment schedule: Typically 5 to 30 years with consistent monthly payments.
• Predictable costs: Fixed rates mean no surprises if market rates increase.
• One-time access: Unlike a HELOC, you cannot draw additional funds later.