HELOCs vs Home Equity Loans

Use this calculator to quickly compare monthly loan payments for

Loan Information
Home equity loan / line amount:
Fixed Rate Home Equity Loan
Fixed interest rate (APR %):
Loan repayment term:
Adjustable Rate HELOC
HELOC repayment term:
Introductory interest rate (APR %):
Months before first rate adjustment:
Months between subsequent adjustments
Expected subsequent average adjustment (APR %):
Interest rate cap (APR %):
Comparison Results Fixed HEL HELOC Interest-Only HELOC
Beginning monthly principal and interest payment:
Total monthly payments:
Total interest:
Maximum monthly payment:

Repayment Calculator Usage Instructions

The above calculator makes it easy to quickly compare the monthly payments on a home equity loan versus a home equity line of credit. Enter the amount you would like to borrow, the loan term & the associated rates of interest. Results automatically update when any input changes. Click on "Create Amortization Schedule" to create a printable amortization schedule for your loan.

The home equity loan option presumes a fixed-rate of interest for the duration of the loan. The HELOC uses variable or adjustable rates. The borrower can select how frequently the HELOC adjusts along with the amount they anticipate each adjustment to be.

On home equity lines of credit borrowers can enter a special introductory rate if they are offered one. If one is not offered, then the initial interest rate is automatically calculated by adding the margin to the reference index rate.

In the repayment term field please enter the length of time you would like the loan or line to amortize in. If a credit line has a 10-year draw period and a 15-year repayment term you would enter 15 in this field.

Comparing Home Equity Loans to HELOCs

Basic Overview

Both home equity loans & lines are considered second mortgages, and they typically allow homeowners to extract up to 80% to 85% of the equity in their home. Some borrowers with pristine credit scores may be able to borrow a higher amount.

The loan limit is called the loan to value (LTV). To calculate it you figure out the value of a home, then subtract any outstanding debts on the dwelling to come up with the limit. If you had a home appraised at $500,000 for which you owe $250,000 – you could see the amount available to you at 80% LTV:

$500,000 X 80% = $400,000 minus existing loan balance of $250,000 = $150,000 available

Home Equity Loans

A home equity loan is just like a first mortgage, except it typically is for a smaller sum of money, charges a slightly higher rate of interest and sits in a junior position to the first mortgage in the capital structure. In most cases home equity loans charge a fixed rate of interest and the loan amortizes over a set schedule.


A home equity line of credit operates like a credit card. A homeowner is approved to withdraw equity up to a set spending limit, and can periodically pay down or pay off the line over time.

During the draw period a homeowner can keep spending money from the HELOC and make monthly payments which pay the minimum balance due (like a credit card bill), pay the interest accrued during the month, pay an amortizing amount, or pay it off in full. After the draw period has ended the homeowner then makes amortizing loan payments based on current interest rates.

Some lenders will require a balloon payment be made to extinguish all debts at the end of the loan period, while other lenders will allow borrowers to either refinance the balance, convert the line into a fixed-rate loan, or renew the HELOC. Some lenders also charge an early close fee if the credit line is closed shortly after opening. Be sure you know what options you have available & the associated expenses before obtaining a line of credit.

Common Expenses

In addition to the cost of interest, other common fees include:

Pros & Cons of Home Equity Loans



Pros & Cons of HELOCs



Personal Income Tax Implications of Extracting Home Equity

Interest on origination debt is considered tax deductible while interest on other debt is not considered tax deductible. This means if you are taking out a home equity loan or HELOC to fund a major home improvement project the interest paid on the second mortgage will likely be tax deductible. But if the money is used to consolidate debts or fund other large purchases then it is generally not considered tax deductible.

Interest expense on mixed-use loans may be partially deductible. Please consult your personal financial advisor before making any high-impact financial decisions, and don't forget to keep your receipts in case you get audited.

Other Financing Options

Home Equity vs Mortgage Refinance

After the run up in tech stocks in the late 1990s the Federal Reserve stimulated the economy by drastically lowering the federal funds rate. This in turn set off a housing boom and also led to a large wave of refinances where borrowers refinanced their home loan to take advantage of the artificially low credit rates. Many borrowers also cashed out additional equity to fund home improvement projects & other large expenses.

The increase in home prices ultimately led to lowering credit quality standards as banks sought to create mortgage backed securities to sell to pension funds which were starving for yield. This ultimately led to the great recession, which once again led to the Federal Reserve lowering interest rates & yet another large wave of demand for home refinancing.

On December 17, 2015 the Federal Reserve felt the economy was strong enough to begin rate normalization, with them lifting rates once more in 2016, 3 times in 2017, and an additional 3 times in the first 9 months of 2018.

As the Federal Reserve has lifted short term interest rates from the range of 0.00% to 0.25% to the range of 2.00% to 2.25% this has also caused longer duration rates to increase. As the 10-year treasury rates increased, so too did 30-year mortgage rates. This has meant refinancing has become less appealing to homeowners, since refinancing their home loan would reset the entire amount owed to current market rates.

Homeowners have instead preferred to tap home equity with a second mortgage so their remaining first mortgage balance retains its existing interest rate.

Home Equity vs Personal Loans

Second mortgages are secured while personal loans are not secured. If the borrower defaults on a second mortgage the lender can take the home. If a borrower defaults on an unsecured personal loan the lender may not be able to go after any of their assets, thus personal loans typically charge a significantly higher rate of interest than second mortgages do.

Glossary of Terms