Ready to claim Social Security? Join a free webinar and learn what can impact how much you can receive.

Content starts here

What’s the Difference Between a Home Equity Loan and a Home Equity Line of Credit?

Both allow you to borrow against your home, either through a lump sum or a line of credit

Sandra Block,

AARP

Published September 18, 2026

A person carrying a house-shaped satchel bag stands next to a similar looking house

Your home equity could be a valuable financial resource. Learn when a lump-sum loan makes more sense than a flexible line of credit

Pete Ryan

Key takeaways

American homeowners held nearly $35 trillion in home equity in the first quarter of 2026. Older homeowners own a large share of it.
Home equity loans provide a lump sum upfront, while home equity lines of credit offer ongoing access to funds as needed.
Most lenders allow homeowners to borrow up to 80 to 85 percent of their home equity, but defaulting could lead to foreclosure.

If you’ve owned your home for many years, there’s a good chance you’ve gained a significant amount of home equity. American homeowners held nearly $35 trillion in home equity in the first quarter of 2026, with older homeowners holding a large share of it.

This record level of home equity, which represents the value of one’s home minus any remaining mortgage balance, reflects a sharp rise in U.S. home values.

More Ways to Benefit

View All

Related Benefit 1
Related Benefit 2
Related Benefit 3
Related Benefit 4
Related Benefit 5

Home equity loans and home equity lines of credit, or HELOCs, provide a way to unlock some of your home’s value. Interest rates for both products are higher than those for primary home mortgages but are typically lower than those for other types of debt, such as credit cards and personal loans.

The type of borrowing tool that’s right for you depends largely upon how you plan to use the money and your ability to repay the lender.

What is a home equity loan?

With a home equity loan, you receive the funds in a lump sum, usually at a fixed interest rate, and repay the loan in fixed monthly payments over a specific term. Payback terms for these loans typically start at five years but can be extended up to 30 years, depending on the lender. While a loan with a longer term will come with lower monthly payments, you’ll pay substantially more in total interest.

A home equity loan may be a good option if you need a lump sum for a specific purpose, such as renovating your kitchen or paying off high-interest credit card debt. While the interest rate may be higher than that of a HELOC, your monthly payment will remain the same for the life of the loan, making these loans more predictable.

What is a home equity line of credit?

A HELOC provides an open line of credit that you can tap at any time during the term of the loan. You’ll pay interest only on the amount you borrow. For example, if you have a HELOC for $25,000 and borrow $10,000 to pay for a new roof, you’ll only pay interest on the $10,000.

During what’s known as a draw period, which ranges from three to 10 years, you can borrow up to the amount of your credit limit. You have the option to make interest-only payments during this time. (Any payment beyond that will go toward the principal.) Once the draw period ends, you’ll be required to start repaying the amount you owe based on your lender’s repayment schedule, which typically is for 10 to 20 years.

A HELOC may be the right choice if you need funds for ongoing purposes: a home renovation project that will take several years, for example, or a child or grandchild’s college tuition. Some financial advisers recommend opening a HELOC even if you don’t need the money, since it can provide a source of funds in a financial emergency, such as a layoff or major car repair. If you’re worried about losing your job, consider obtaining a HELOC while you’re working. You may not qualify for one if you’re unemployed, since lenders usually ask applicants to provide proof of income from a job or another source.

Recently, the average interest rate for a HELOC was 7.53 percent, versus 7.69 percent for a home equity loan, according to Experian. While home equity loan rates are usually fixed for the life of the loan, HELOC rates are typically tied to a benchmark — usually the prime rate — and can rise or fall during the term of your loan. If the Federal Reserve raises short-term interest rates, the rate on your HELOC will probably rise, too.

How much equity can you tap?

Most lenders will let you borrow up to 80 to 85 percent of your home equity. But you should borrow only as much as you’re confident you can repay under the terms of the loan.

The stakes are high. If you default on credit card debt, your credit score will suffer. Default on a home equity loan or a HELOC, and you could lose the roof over your head to foreclosure.

Sandra Block has covered personal finance for more than two decades. She was a senior editor at Kiplinger Personal Finance and a reporter for USA TODAY. She is the coauthor of The Busy Family’s Guide to Money and Easy Ways to Lower Your Taxes: Simple Strategies Every Taxpayer Should Know.

AARP Membership

Join AARP for only $15 per year with automatic renewal. Get instant access to members-only products and hundreds of benefits, a free second membership, and a subscription to AARP The Magazine.

Join