Compare HELOCs and home equity loans side-by-side. Learn which option saves you money based on your situation — from a CA broker with 15+ years experience.
You've built equity in your home. Now you need to tap into it. The question is: HELOC or home equity loan?
I've helped hundreds of California homeowners make this decision over 15 years. Here's what actually matters.
Home Equity Loan: You borrow a lump sum. Fixed rate. Fixed payment. Paid back over 10-30 years.
HELOC (Home Equity Line of Credit): You get a credit line. Variable rate. Draw what you need, when you need it. 10-year draw period, then 20-year repayment.
Think of it this way: a home equity loan is like a personal loan secured by your house. A HELOC is like a credit card secured by your house.
Use a home equity loan if:
Let's say you have $60,000 in credit card debt at 22% APR. Monthly minimum payments are eating you alive.
Home equity loan scenario:
If you kept the credit cards:
You save $141,540 in interest. That's not a typo.
Broker's Tip: Home equity loan rates are typically 0.5-1% higher than HELOC rates, but you're paying for certainty. If you hate financial surprises, pay the premium.
Use a HELOC if:
Your kid starts college in Fall 2026. You'll need money each semester, but you don't know exactly how much (scholarships, financial aid, changes in tuition).
HELOC scenario:
You only pay interest on what you've drawn. Month 1? Interest on $20,000. After the second draw? Interest on $38,000. You're not paying interest on the full $100,000 you haven't used.
Compare that to a home equity loan where you'd borrow $100,000 upfront and immediately start paying interest on money sitting in your checking account.
Broker's Tip: HELOCs shine when you have a multi-year project or uncertain costs. Don't borrow $80,000 today if you only need $20,000 this year.
| Feature | Home Equity Loan | HELOC | |---------|------------------|-------| | Rate Type | Fixed | Variable (tied to prime) | | Current Rate | 7.00-7.50% | 6.50-7.25% | | Payment | Fixed monthly payment | Interest-only during draw period | | How You Get Money | Lump sum at closing | Draw as needed | | Best For | One-time expenses | Ongoing expenses | | Risk | None (rate locked) | Rate can increase | | Discipline Required | Low | High | | Closing Costs | $2,000-$5,000 | $500-$2,000 (sometimes $0) |
HELOCs are tied to the prime rate. As of March 2026, prime is 6.50%. If the Federal Reserve raises rates, your HELOC rate goes up. If they cut rates, your rate goes down.
Here's what happened in recent history:
If you took out a HELOC in 2021 at prime + 0.25% (3.50% total), by late 2023 you were paying 8.75%. Your monthly interest on a $50,000 balance went from $146 to $365. That's a $219/month jump.
Can you handle a $200-300/month payment increase? If not, get a home equity loan with a fixed rate.
Broker's Tip: HELOC lenders often advertise low rates, but read the fine print. Many have a floor rate (minimum rate, usually 4-5%) and a ceiling rate (maximum rate, usually 18%). You can't drop below the floor even if prime crashes.
Many people think home equity loans and HELOCs are tax-deductible. Sometimes yes, often no.
Under current tax law, you can deduct interest if:
You CANNOT deduct interest if you use the money for:
Most of my clients use home equity for debt consolidation or non-home expenses. That means no tax deduction. Plan accordingly.
Home Equity Loans:
HELOCs:
Broker's Tip: A "no closing cost" HELOC isn't free. You're either paying a higher rate OR you'll owe the costs if you close the line early. Read the fine print.
Most lenders allow you to borrow up to 85% of your home's value, minus what you owe on your first mortgage.
Math example:
You can get a home equity loan OR HELOC for up to $160,000.
Some lenders go to 90% LTV (loan-to-value), but rates are higher and requirements are stricter.
Home Equity Loan:
HELOC:
HELOCs are slightly harder to qualify for because the lender is giving you an open credit line (more risk for them).
Here's how I help clients decide:
Step 1: What's the money for?
Step 2: How certain are the costs?
Step 3: Can you handle rate risk?
Step 4: How disciplined are you?
Step 5: What does the math say?
If you're tapping a large amount of equity ($150,000+) AND your current mortgage rate is higher than today's rates, consider a cash-out refinance instead.
Why? You replace your first mortgage with a new, larger loan and take the difference in cash. You end up with one loan, one payment, and potentially a lower rate than stacking a HELOC or home equity loan on top of your existing mortgage.
Example:
Option 1: Keep your mortgage, take a $75,000 HELOC at 6.75%
Option 2: Cash-out refinance to $425,000 at 6.35%
See our cash-out refinance guide for details.
Mistake 1: Using a HELOC for a One-Time Expense If you're doing a kitchen remodel and you know it costs $80,000, get a home equity loan. Don't expose yourself to rate risk for no reason.
Mistake 2: Using a Home Equity Loan for Ongoing Expenses If you're funding a business over 3 years, a HELOC makes more sense. Don't borrow $100,000 upfront and pay interest on money you won't use for 2 years.
Mistake 3: Ignoring the Adjustable Rate Risk I've seen clients get HELOCs in low-rate environments and get hammered when rates spike. If you can't afford a 3-4% rate increase, don't get a HELOC.
Mistake 4: Treating a HELOC Like Free Money A HELOC is debt secured by your home. If you can't pay it back, you lose your house. Don't use it for vacations or cars.
Mistake 5: Not Shopping Around Rates vary by 1-2% between lenders. Get quotes from at least 3 lenders. Use our quote tool to compare offers.
Q: Can I have both a HELOC and a home equity loan?
Yes, but most lenders cap your total borrowing at 85-90% LTV. If you already have a HELOC using most of your available equity, you won't qualify for a home equity loan.
Q: What happens to my HELOC after the draw period ends?
After 10 years (typical draw period), you can't draw anymore. The balance converts to a 20-year repayment loan. Your payment will increase significantly because you're now paying principal + interest instead of interest-only.
Q: Can I pay off a HELOC early?
Yes, but check for prepayment penalties. Some lenders charge a fee if you close the HELOC within 2-3 years (especially if they waived closing costs).
Q: Which is easier to qualify for?
Home equity loans are slightly easier. HELOCs require a higher credit score and more income documentation because you're getting access to a large credit line.
Q: Can I convert my HELOC to a fixed-rate loan?
Some lenders offer this feature. You can "lock in" a portion of your HELOC balance at a fixed rate. Ask your lender if they offer fixed-rate advance options.
Not sure which option is right for you? Let's talk.
I've been a licensed mortgage broker in California for 15+ years (DRE #01212512). I'll run the numbers for your specific situation and show you exactly what each option costs.
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Licensed mortgage broker with 15+ years of experience helping homeowners save money through refinancing. CA DRE #01212512.