Both products allow you to access the value built up in your home — but how you receive and repay the funds, as well as the flexibility, varies greatly.
1. Loan Type and Structure
| Feature | Home Equity Loan | HELOC (Home Equity Line of Credit) |
|---|---|---|
| Type | One-time lump sum loan | Revolving line of credit |
| Structure | Fixed loan amount | Flexible borrowing over time |
| Access to Funds | All at once | As needed, when needed |
2. Repayment Terms
| Feature | Home Equity Loan | HELOC |
|---|---|---|
| Repayment Starts | Immediately | Only on what you use |
| Payment Type | Fixed monthly payments (interest + principal or interest-only) | Usually interest-only payments during draw period |
| Flexibility | Rigid (fixed amount and term) | High flexibility (draw and repay repeatedly) |
3. Interest Rates
| Feature | Home Equity Loan | HELOC |
|---|---|---|
| Rate Type | Usually fixed | Variable (often Prime + margin) |
| Predictability | Predictable payments | Payments can fluctuate with rate changes |
| Typical Rates (as of 2024–25) | 6%–12% (higher with private lenders) | 6%–8% (Prime + 0.5% to 2%) |
4. Qualification Requirements
| Feature | Home Equity Loan | HELOC |
|---|---|---|
| Credit Score | Can be more lenient (especially with private lenders) | Must have good to excellent credit |
| Income Verification | Sometimes flexible | Strict income and debt servicing ratios |
| Typical Lenders | Private lenders, mortgage brokers, alternative lenders | Banks and credit unions |
5. Use Cases
| Feature | Home Equity Loan | HELOC |
|---|---|---|
| Best For | Large, one-time expenses (e.g., renovations, debt consolidation, legal fees) | Ongoing, flexible access to funds (e.g., tuition, emergencies, investments) |
| Term | Fixed term (1–5 years) | Indefinite — open as long as you maintain the account |
Summary Table
| Category | Home Equity Loan | HELOC |
|---|---|---|
| Lump Sum or Ongoing | Lump sum | Ongoing access |
| Payment Type | Fixed or interest-only | Interest-only (typically) |
| Interest Rate | Usually higher, fixed | Lower, variable |
| Flexibility | Low | High |
| Qualification Ease | More accessible | Stricter (bank-level criteria) |
| Common Lenders | Private/alternative lenders | Banks and credit unions |
Final Thoughts
A Home Equity Loan is better if you:
- Need a large lump sum now
- Want predictable payments
- May not qualify for a HELOC due to credit or income limits
A HELOC is better if you:
- Want flexible, ongoing access to funds
- Have strong credit and steady income
- Prefer only paying interest on what you borrow
If you would like to connect to a local mortgage broker to get more information fill in a form below.
