If you have built equity in your home, you can borrow against it at rates that are usually lower than credit cards or personal loans. The two main products are the home equity line of credit (HELOC) and the home equity loan. Here is how they differ.
| HELOC | Home equity loan | |
|---|---|---|
| How you get funds | Draw as needed from a credit line | One lump sum at closing |
| Rate | Usually variable | Usually fixed |
| Payments | Can be interest-only during the draw period | Fixed principal and interest from the start |
| Best for | Ongoing or uncertain costs | One known expense |
How much can you borrow?
Lenders look at your combined loan-to-value ratio (CLTV): your current mortgage balance plus the new borrowing, divided by your home's appraised value. Many lenders cap CLTV somewhere around 80% to 90%. Your credit score, income and debt-to-income ratio also count.
When a HELOC fits
A HELOC works well for a remodel paid in stages, or as a reserve you may not fully use. You pay interest only on what you draw. The risk is the variable rate: if rates climb, so does your payment, and the switch from the draw period to repayment can raise payments sharply.
When a home equity loan fits
If you know the exact amount, such as consolidating a set amount of debt, a fixed-rate loan gives you a predictable payment for the whole term.
Watch the costs
Ask every lender for an itemized list of closing costs, annual fees and early-closure fees. A lower rate with high fees can cost more than a slightly higher rate with none.
Keep the risk in view
Both products are secured by your home. Using home equity to pay off credit cards can save interest, but only if the card balances don't come back.
See home equity options from multiple lenders.
Compare lendersThis guide is general information, not financial, legal, tax or insurance advice. Terms vary by provider and state.