⚡ Quick Answer: Which Should You Choose?
Choose HOME EQUITY LOAN if:
- ✓ You need a specific amount upfront
- ✓ You want predictable monthly payments
- ✓ You're doing a major renovation
- ✓ You prefer fixed interest rates
Choose HELOC if:
- ✓ You need flexible, ongoing access
- ✓ You're unsure of total costs
- ✓ You want to pay interest only on what you use
- ✓ You're comfortable with variable rates
📊 Current Rates: February 2026
Home Equity Rates Comparison
| Product | Average Rate | Rate Type | Best For |
|---|---|---|---|
| Home Equity Loan | 7.50% | Fixed | Large, one-time expenses |
| HELOC | 8.00% | Variable (Prime + margin) | Ongoing/flexible needs |
| Cash-Out Refinance | 6.35% | Fixed | If current rate is higher |
📉 Good News: Home equity rates have dropped to 3-year lows! The average HELOC rate is down from 9.0% in early 2025 to 8.0% today. Home equity loan rates are at 7.5%, the lowest since 2022.
🔍 Complete Side-by-Side Comparison
| Feature | Home Equity Loan | HELOC |
|---|---|---|
| How You Receive Funds | Lump sum upfront | Draw as needed (like credit card) |
| Interest Rate | Fixed (7.50%) | Variable (8.00%) |
| Monthly Payment | Same every month | Varies with balance & rate |
| Draw Period | N/A (one-time disbursement) | 5-10 years |
| Repayment Period | 5-30 years | 10-20 years after draw period |
| Closing Costs | 2-5% of loan amount | Often $0 or minimal |
| Interest Deductible? | Yes, if used for home improvement | Yes, if used for home improvement |
| Best Use Case | Major renovation, debt consolidation | Ongoing projects, emergency fund |
💵 Real Cost Comparison: $50,000 Borrowed
10-Year Repayment Scenario
| Cost Factor | Home Equity Loan | HELOC |
|---|---|---|
| Amount Borrowed | $50,000 | $50,000 |
| Interest Rate | 7.50% fixed | 8.00% variable* |
| Monthly Payment | $593 | $607 (can vary) |
| Total Interest Paid | $21,160 | $22,840 |
| Closing Costs | $1,500 (3%) | $0 |
| TOTAL COST | $72,660 | $72,840 |
💡 Key Insight: For a fixed amount over a set term, home equity loans typically cost slightly less due to lower fixed rates. However, if you don't need the full amount or can pay it back faster, a HELOC's flexibility may save you more.
🎯 When to Choose Each Option
🏠 Home Equity Loan
Best for predictable, one-time expenses:
- ✓Major home renovation
Kitchen remodel, addition, roof replacement
- ✓Debt consolidation
Pay off high-interest credit cards at once
- ✓Large purchase
Wedding, medical bills, education
- ✓Rate protection
Lock in today's rate if you expect increases
💳 HELOC
Best for flexible, ongoing needs:
- ✓Phased renovations
Draw funds as each project phase begins
- ✓Emergency fund
Access when needed, pay no interest until used
- ✓Uncertain costs
When you don't know exact amount needed
- ✓Short-term borrowing
Pay back quickly to minimize interest
📐 How Much Can You Borrow?
Most lenders allow you to borrow up to 80-85% of your home's value, minus what you owe on your mortgage. Here's the formula:
📊 Equity Calculator Formula
Example Calculation:
• Home Value: $500,000
• Maximum LTV (80%): $400,000
• Current Mortgage Balance: $280,000
= Available to Borrow: $120,000
🏠 Average Tappable Equity by State (2026)
California
$432K
Texas
$198K
Florida
$267K
National Avg
$299K
✅ Qualification Requirements
| Requirement | Home Equity Loan | HELOC |
|---|---|---|
| Credit Score | 680+ (some accept 620) | 680+ (some accept 620) |
| Debt-to-Income (DTI) | 43% or less | 43% or less |
| Home Equity | 15-20% minimum | 15-20% minimum |
| Combined LTV | 80-85% maximum | 80-85% maximum |
| Income Verification | Required (W-2s, tax returns) | Required (W-2s, tax returns) |
⚖️ Pros & Cons Summary
Home Equity Loan
✅ Pros
- • Fixed rate = predictable payments
- • Lower rates than HELOCs currently
- • Full amount upfront
- • Easier budgeting
❌ Cons
- • Higher closing costs (2-5%)
- • Pay interest on full amount immediately
- • Less flexibility
- • Can't re-borrow after paying down
HELOC
✅ Pros
- • Only pay interest on what you use
- • Low or no closing costs
- • Flexible access to funds
- • Can re-borrow during draw period
❌ Cons
- • Variable rate = payment uncertainty
- • Rates currently higher than HE loans
- • Temptation to overspend
- • Payment shock when draw period ends
Ready to Tap Your Home Equity?
Compare rates from multiple lenders in minutes. See how much you could borrow and at what rate.
❓ Frequently Asked Questions
Is a HELOC or home equity loan better for debt consolidation?
A home equity loan is typically better for debt consolidation because you get a fixed rate and predictable payments. You'll know exactly how much you owe and when it will be paid off. A HELOC's variable rate could increase your costs over time.
Can I have both a home equity loan and a HELOC?
Yes, you can have both, but your combined loan-to-value (CLTV) ratio must stay within lender limits (typically 80-85%). Some homeowners use a home equity loan for a major expense and keep a HELOC open for emergencies.
What happens if I can't make payments?
Both are secured by your home, so failure to pay could result in foreclosure. If you're struggling, contact your lender immediately—they may offer forbearance, modification, or other options. This is why it's crucial to borrow only what you can afford to repay.
Are home equity loan interest payments tax deductible?
Yes, if you use the funds to "buy, build, or substantially improve" your home, the interest may be tax deductible (up to $750,000 total mortgage debt). Using funds for other purposes like debt consolidation or vacations is not deductible. Consult a tax professional for your specific situation.
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David Rodriguez
Refinance & Home Equity Specialist • 10+ Years Experience
David specializes in helping homeowners leverage their equity wisely. He's helped thousands of clients choose between HELOCs, home equity loans, and cash-out refinances to meet their financial goals.