Home Equity Loan vs. Line of Credit
Explained Without the Jargon
A home equity line of credit (also called a HELOC, pronounced HEE-lock) is the same thing as "a line of credit on your home." Here is how it compares to a home equity loan, in plain English, with real April 2026 numbers.
Last verified: April 2026
The bank hands you a lump sum on day one. You make the same fixed payment every month until it is paid off. Simple and predictable.
- Fixed interest rate
- Fixed monthly payment
- April 2026 average rate: 8.3% APR
The bank opens a "pot" you can dip into. Take $5,000 this month, nothing for six months, then another $10,000. You pay interest only on what you have taken out.
- Variable interest rate (tied to prime rate)
- Interest-only payments during draw period
- April 2026 average starting rate: 8.6% APR
At a Glance
| Feature | Home Equity Loan | Line of Credit (HELOC) |
|---|---|---|
| How you get the money | One lump sum, day one | Draw as needed over 10 years |
| Interest rate type | Fixed | Variable (tied to prime rate) |
| Monthly payments | Same every month | Interest-only during draw; full amortisation after |
| April 2026 avg. rate | 8.3% APR | 8.6% starting (variable) |
| Typical term | 5 to 30 years | 10-year draw + 20-year repayment |
| Closing costs | 2 to 5% of loan amount | 2 to 5%, or sometimes waived |
| Best for | Known one-time costs | Phased or uncertain spending |
| Biggest risk | Your home is collateral | Rate can rise; payment shock at draw end |
When Each Wins
Five real situations and which product fits better.
You have a fixed contractor bid. You need all the money now. Fixed payments make budgeting easy and you know exactly when you will be debt-free.
You will draw in phases. The HELOC charges interest only on what you have actually used, saving hundreds versus borrowing everything upfront.
Replace 22% APR card debt with 8.3% APR loan. Fixed rate locks in the saving. Warning: this converts unsecured debt to debt secured by your home.
Draw $20,000 per academic year. Pay interest only on what is drawn. Borrowing all $80,000 upfront on a home equity loan would cost far more in total interest.
No cost until you draw. A home equity loan would charge interest from day one on money you might never need.
Read our plain-English decision guide for a step-by-step walkthrough.
Read the plain-English guide →April 2026 Rate Snapshot
As of April 2026, the average home equity loan is around 8.3% APR. The average HELOC starts around 8.6% but is variable.
Where to Go Next
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Every term used on this site, defined in plain English. LTV, CLTV, draw period, and 25 more.