Home Equity Loan vs HELOC: Which Is Cheaper?

Most comparisons stop at “one is fixed, one is variable” and leave you to guess which costs less. Both are second liens on the same house, both are priced off the same market, and either can be the cheaper option depending on one thing: the shape of your borrowing.

So this page does the arithmetic. We show what $50,000 costs each way, what a variable payment does when prime moves, and where equity is actually growing fast enough to borrow against. DollarVisor takes no payment for placement, and no lender can buy a spot in any table below.

First, the plain-English version of how the two differ.

1. Which One Is Actually Cheaper?

Quick Answer: A home equity loan is usually cheaper over a long hold because the fixed rate protects you from increases. A HELOC is usually cheaper over a short hold because you pay interest only on the amount drawn. Below roughly 18 to 24 months of carrying a balance, the line normally wins.

The two products are close cousins. Both sit behind your first mortgage and both use your house as collateral. Where they split is the shape of the money: one hands you a lump sum on day one, the other a limit you can dip into for years. That difference drives every cost gap below, and it matters more than the rate quoted at the application desk. If you have not settled on a second lien yet, start with how borrowing works across loan types.

The Consumer Financial Protection Bureau frames the split the same way, describing a home equity loan as a lump sum and a HELOC as a revolving line you can reuse as you repay it.

2. What Does $50,000 Cost You Each Way?

Quick Answer: On $50,000 over ten years, each three-quarters of a point costs about $2,400 in extra interest. At 8.50% the fixed loan runs roughly $620 a month and $24,383 in total interest. The same rate on a HELOC costs $354 a month while you pay interest only, but pays down nothing.

A fixed home equity loan payment includes principal, so the balance falls every month. A HELOC payment during the draw period often does not, which hides the fact that you still owe the full $50,000 when the draw ends. The two payment columns answer different questions: what it costs to clear the debt, and what it costs to hold it. Our walk-through of how mortgages work runs the same math on a longer term.

Two things fall out of that table. Rate shopping is worth real money: the gap between 7.00% and 10.00% is $9,625 of interest on the same $50,000. And the HELOC’s interest-only column is not a discount. It is a deferral, and the deferred principal returns later as a much larger payment.

3. What Happens to a HELOC When the Prime Rate Moves?

Quick Answer: A HELOC payment moves with the bank prime rate, usually within a billing cycle. Prime has fallen from 7.75% in November 2024 to 6.75% as of May 26, 2026. On a $50,000 balance, that one-point drop cut the interest-only payment by about $42 a month.

This is the part of the decision most people underweight. A fixed loan locks your rate the day you sign. A HELOC re-prices every time the prime rate changes, and prime follows the Federal Reserve. The last two years moved in borrowers’ favor, which makes it easy to forget the mechanism runs both ways. Each rate below is the posted bank prime loan rate on its effective date, per the Federal Reserve H.15 release. Rate exposure is a household risk like any other, which is the logic behind our guide to the insurance you actually need.

A one-point move is not dramatic. A four-point move is, and prime has done that inside a two-year stretch before. So ask the honest question: if your HELOC payment rose by half, would the budget still work?

4. How Much Can You Actually Borrow Against Your Home?

Quick Answer: Lenders set your limit as a share of the appraised value minus what you still owe. Texas writes its cap into the state constitution at 80% of fair market value. On a $400,000 home with a $250,000 mortgage, that 80% ceiling leaves $70,000 of borrowing room.

The ceiling is a state-level question, and Texas is the clearest example. Article XVI, Section 50 of the Texas Constitution caps a home equity extension of credit at 80% of fair market value. That ceiling counts every other lien on the homestead too. Most states leave the cap to the lender, who keeps a cushion anyway. The arithmetic is the same three steps:

1. Start with the appraised value. Your own estimate does not count; the lender’s appraisal sets the ceiling.
2. Apply the cap. On a $400,000 home at 80%, all liens together cannot exceed $320,000.
3. Subtract the first mortgage. With $250,000 owed, your maximum second lien is $70,000, loan or line.

Some states also stop the two products being interchangeable. Texas does not allow a HELOC behind a Section 50(a)(6) home equity loan, so the order you borrow in can close a door you wanted later. In expensive markets, check whether the first mortgage itself crosses into jumbo loan limits, which changes the underwriting on everything stacked behind it.

5. Where Is Home Equity Still Growing?

Quick Answer: Home prices rose 1.7% nationally in the year to the first quarter of 2026, but the state spread was wide. Illinois gained 7.3% while Colorado lost 2.4%. Prices rose in 42 states and fell in eight plus the District of Columbia.

Equity growth decides how much room you have to borrow, and it is not a national number. Federal Housing Finance Agency data for the year to the first quarter of 2026 puts Illinois at the top and Colorado at the bottom, a spread of nearly ten points between two ordinary states. The dollar column converts each percentage into equity on a $400,000 home, the figure that actually changes your borrowing options across loan types.

Falling prices do not just slow your equity build. They can shrink an approved HELOC limit, because most agreements let the lender freeze or reduce the line when the value drops. That risk sits in the markets where prices fell this year.

6. Which Fees Change the Answer?

Quick Answer: Fees decide the home equity loan vs HELOC question on small balances. A line with an annual fee and an early-closure charge can cost more than a fixed loan even at a lower rate, because the fees do not shrink when the balance does.

The charges a lender may apply to a line of credit run longer than most borrowers expect. Read the recurring ones, not just the closing ones:

• Annual or maintenance fee. Charged whether you draw or not. On a $10,000 balance, $75 a year matches three-quarters of a point of extra interest.
• Early-closure fee. Many lines charge you for closing inside the first few years, which quietly cancels the “repay it fast” advantage.
• Transaction or draw fees. A per-draw charge punishes the staged spending a line is meant to suit.
• Appraisal and closing costs. Both products can carry them, and some lenders waive them on one but not the other.

Read the CFPB’s summary of what fees a lender can charge on a HELOC before you sign, alongside the HELOC booklet lenders must give you at application. Our mortgage cost breakdown applies the same fee discipline to the first mortgage.

7. Is the HELOC Market Getting Riskier?

Quick Answer: HELOC balances reached $446 billion in the first quarter of 2026, up $44 billion in a year and $129 billion above the 2022 low. Missed payments rose too: the share of HELOC balances newly falling seriously delinquent went from 0.88% to 1.15%.

Volume and stress are climbing together, which is the pattern worth watching. New York Fed data shows home equity lines expanding for a sixteenth straight quarter, with serious delinquency rising faster on HELOCs than on first mortgages.

HELOC balances sit $129 billion above their 2022 low, and the share falling seriously behind climbed nearly a third in a year.

8. How Do You Compare Two Offers Side by Side?

Quick Answer: Price both offers over the same holding period, at the same balance, with fees included. Then stress-test the variable one at two points higher. If the HELOC still wins under that stress, take the line. If it does not, take the fixed loan.

How to compare a home equity loan and a HELOC offer

Four steps turn two incomparable quotes into one number. Use the same balance and the same number of months for both.

1. Fix the holding period. Decide honestly how many months the balance will sit there. Optimism here is what makes a HELOC look cheap.
2. Total the interest. Use the fixed rate for the loan and today’s rate for the line. Our loans hub has the amortization figures.
3. Add every fee. Closing costs, appraisal, each year’s annual fee, and any early-closure charge.
4. Stress the variable rate. Re-run the line’s total two points higher than quoted. That is the number to compare, because that is the risk you accept.

9. Which One Fits Your Situation?

Quick Answer: Take the fixed home equity loan for one-time costs and debt consolidation. Take the HELOC for staged projects, tuition paid by semester, or a standby buffer you may never draw. Match the product to the timing of the spending.

Most borrowers already know their pattern. The mistake is choosing on rate, then finding the structure fights the plan. If neither second lien fits, go back to the wider set of borrowing choices.

• One-time cost with a known price. A new roof, a medical bill, a car. Fixed loan: you know the number, so lock the rate.
• Consolidating credit card debt. Fixed loan, almost always. A line lets you re-borrow the same money, which is how consolidation grows a balance.
• Renovation in phases. HELOC. You draw as each trade invoices and pay interest only on what is spent.
• Emergency buffer. HELOC, but check the annual fee. An untouched line with no fee is cheap insurance; one with a $75 fee is a subscription.

10. The Verdict

Quick Answer: Our pick for most borrowers is the fixed home equity loan, because the risk is priced once and never changes. The HELOC is the better tool for staged or uncertain spending you can clear inside two years. Companies cannot pay for placement in our rankings.

The honest answer to the home equity loan vs HELOC question is that the cheaper product depends on your holding period and your fee schedule, not on which one advertises a lower rate today. Price both over the same months, add the fees, stress the variable one, and the winner stops being a matter of opinion. Then check the result against the rest of your borrowing options.

11. Frequently Asked Questions

1. Is a HELOC cheaper than a home equity loan?

Over a short holding period, usually yes, because you pay interest only on the amount you have drawn rather than on a full lump sum. Over several years the fixed loan often costs less, since the HELOC rate moves with the prime rate and can rise at any time. Fees can flip the answer on balances under about $25,000.

2. Which has the lower interest rate, a home equity loan or a HELOC?

Lines of credit often quote a lower opening rate because the rate is variable and the lender is not carrying the interest-rate risk. That opening rate is not a promise. A HELOC priced at prime plus one point sits at 7.75% while prime is 6.75%, and it moves the day prime moves.

3. Can I have both a home equity loan and a HELOC?

Sometimes, if your combined loan-to-value still fits under the cap. Some states restrict it. Texas, for example, does not allow a HELOC to sit behind a Section 50(a)(6) home equity loan, so the order in which you borrow can rule out the second product entirely.

4. Which is better for consolidating credit card debt?

The fixed home equity loan, in most cases. It gives you a set payment and a finish date, and the balance cannot be re-borrowed once repaid. A line of credit leaves the paid-off room available again, which is how consolidation often ends with more total debt than it started with.

5. What happens when a HELOC draw period ends?

The line closes to new draws and you begin repaying principal as well as interest, which usually raises the payment sharply. A borrower who paid interest only still owes the full balance on day one of repayment. Plan for that step-up before the draw period runs out.

This page is information, not financial advice. Rates, caps, and fees change, and your terms depend on your lender and state. See our disclaimer.