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Credit line or lump sum?
The amount, both rates, the HELOC’s draw and repayment periods, and a rate-shock stress test.
X VS Y COMPARISON · MONEY
HELOC vs Home Equity Loan
Two ways to borrow against your house: a variable-rate credit line you draw from over time, or a fixed-rate lump sum you start repaying on day one. Enter your numbers and see both monthly payments, both total-interest bills, and what happens to the HELOC if rates rise.
How this comparison works
The home equity loan is simple: one lump sum, amortized at a fixed rate from the first payment. The HELOC has two acts — an interest-only draw period (usually about 10 years) at a variable rate, then a repayment period where the balance amortizes, often at a higher rate than you started with. This calculator prices both phases, applies your rate-shock assumption to the second act, and compares the two total-interest bills.
Output · formula · meaning
| Output | Formula | What it means |
|---|---|---|
| HELOC draw payment | balance × rate ÷ 12 | $354/mo at the defaults — interest only, for 10 years. |
| HELOC total interest | draw interest + repayment interest | $112,306 — $42,500 of draw-period interest, then $69,806 to amortize the balance at 10.5%. |
| Home equity loan payment | amortization formula | $358/mo fixed for 30 years — principal and interest from day one. |
| Home equity loan interest | payments − principal | $78,954 total — the rate never moves. |
| Interest gap | HELOC interest − loan interest | $33,351 in the home equity loan’s favor at the defaults. |
The draw-period trap
The HELOC’s first act is what sells it: a $50,000 balance at 6% costs about $200 a month interest-only, and it feels cheap. But interest-only means the balance never shrinks — and when the draw period ends, the whole $50,000 must be repaid over the remaining term. That payment can jump from $200 to $800 overnight. The stress-test field exists for exactly this: run your HELOC with a 2-point rise and see whether the second act still fits your budget. If it doesn’t, you were never choosing between two products — you were choosing between cheap now and expensive later.
Who uses this
- Phased renovators: a two-year remodel with costs arriving in stages — draw only what each phase needs.
- Tuition payers: semester-by-semester college bills — the credit line matches the cash flow.
- Emergency-buffer keepers: an open HELOC with a zero balance as a backstop — often just an annual fee until you draw.
- Debt consolidators: one known balance to kill — the fixed loan’s locked payment removes the temptation to re-borrow.
Accuracy & limitations
The HELOC model assumes the full amount is drawn on day one and repaid at the stressed rate — the honest worst-case shape. Real HELOC borrowers often draw less, which lowers the HELOC’s cost, and real HELOC rates track the prime rate in both directions, not just up. The model ignores closing costs, annual and inactivity fees, and tax treatment (IRS rules let you deduct the interest only if the money buys, builds, or substantially improves the home, and only if you itemize). Both products are second liens: defaulting puts the house at risk. Compare total interest, not just the first payment — that’s where the draw-period trap hides.
Paying off cards instead? Compare the fixed-loan side against pay off debt vs invest, and the full reasoning is in the guide HELOC vs home equity loan: which is better?.
Cite this calculatorBright Side Kit. “HELOC vs Home Equity Loan.” brightoolbox.com, 2026.
Bright Side Kit. "HELOC vs Home Equity Loan." https://brightoolbox.com/heloc-vs-home-equity-loan/ Accessed October 22, 2026.Frequently asked questions
Is a HELOC or a home equity loan better?
It depends on the shape of your need. One defined expense — a single bill, a debt balance to consolidate — favors the home equity loan: fixed payment, no rate risk, no temptation to re-borrow. Ongoing or uncertain needs — a phased renovation, tuition across semesters, an emergency buffer — favor the HELOC: you pay interest only on what you actually draw, and you can draw again.
Can my HELOC rate go up?
Yes — that’s the core risk. HELOCs are variable-rate, typically tied to the prime rate plus a lender margin, so your payment can rise even if you never borrow another dollar. The stress-test field shows the honest version: re-run your numbers with a 2-point rise before you commit.
What happens when the HELOC draw period ends?
You can no longer draw, and the outstanding balance enters the repayment period — amortized over the remaining term, often 10 to 20 years. The monthly payment jumps because you’re now paying principal as well as interest. Borrowers who only made interest-only payments feel this the most.
Is HELOC interest tax deductible?
Only if the borrowed money is used to buy, build, or substantially improve the home securing the loan — and only if you itemize deductions. Using a HELOC for a vacation, a car, or credit-card payoff does not qualify under current IRS rules.
Do I need an appraisal for a HELOC or home equity loan?
Usually yes — the lender needs to know the home’s current value to size the loan against your equity (most cap combined borrowing around 80–85% of the value). The lender orders it; you typically pay for it as part of closing costs.
Can I have a HELOC and a mortgage at the same time?
Yes — that’s the normal setup. A HELOC or home equity loan is a second lien that sits behind your first mortgage. Your existing mortgage rate and payment don’t change, which is the whole point versus a cash-out refinance.
What is a typical HELOC draw period?
Ten years is the most common, followed by a 15-to-20-year repayment period. Some lenders offer 5-year draws or 30-year total terms — the fields above let you model whatever your lender quotes.