HELOC vs Home Equity Loan Calculator
Should you choose a HELOC or a home equity loan? This calculator compares total costs, monthly payments, and models what happens to your HELOC payment if interest rates rise — so you can make a fully informed decision.
🔵 HELOC (Variable Rate)
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National avg: 7.21% · Prime + margin
🟢 Home Equity Loan (Fixed Rate)
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National avg: 7.36% · Never changes
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Typically 2-4% of loan amount
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HELOC (variable)
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Initial interest-only payment
Initial rate—
Interest-only pmt (draw period)—
P&I payment after draw ends—
If rates rise scenario—
Total interest (flat rate scenario)—
Total cost (flat rate)—
Home equity loan (fixed)
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Fixed payment — never changes
Fixed rate (locked)—
Monthly payment—
Payment if rates rise—
Closing costs—
Total interest—
Total cost (incl. closing costs)—
Calculating rate risk…
| Feature | HELOC | Home Equity Loan |
|---|---|---|
| Rate type | Variable (Prime + margin) | Fixed for life |
| Initial monthly payment | — | — |
| Payment if rates +1% | — | — |
| Total interest (flat rates) | — | — |
| Closing costs | Usually $0–$500 | — |
| Flexibility | High — draw as needed | None — lump sum only |
| Rate risk | Yes — rises with prime rate | None |
| Best for | Ongoing projects, flexibility | One-time lump sum needs |
Understanding HELOC Rate Risk
The biggest risk of a HELOC is that your rate — and therefore your payment — can rise significantly if the Federal Reserve raises rates. The Fed raised rates by 5.25% between 2022 and 2023, which caused HELOC payments to jump dramatically for borrowers. A $75,000 HELOC at 7.21% has an interest-only payment of about $451/month. If rates rise 3%, that payment becomes $639/month — a 42% increase with no warning.
A home equity loan eliminates this risk entirely. Your rate is locked the day you close, regardless of what the Fed does over the next 10–20 years. If you are on a fixed income, have tight cash flow, or simply want certainty, the home equity loan is the safer choice even if its starting rate is slightly higher.
Frequently Asked Questions
What is a HELOC?
📚 HELOC (Home Equity Line of Credit) is a revolving line of credit secured by your home, similar to a credit card but at much lower rates. During the draw period (typically 10 years), you can borrow up to your limit, repay it, and borrow again. You only pay interest on the amount you actually use. After the draw period, you enter the repayment period (typically 20 years) and pay both principal and interest. Rates are variable — they move with the prime rate.
What is a home equity loan?
📚 Home Equity Loan (HEL) is a fixed-rate second mortgage where you receive a lump sum and repay it in equal monthly installments over 5–30 years. Your rate and payment are locked at closing and never change. It is sometimes called a “second mortgage” or “home equity installment loan.”
Which is better for a home renovation?
For a home renovation where costs are spread over time (stages of work, multiple contractors), a HELOC is often better — you draw only what you need and pay interest only on the outstanding amount. For a single large contractor payment where you know the exact cost upfront, a home equity loan may be simpler and safer due to rate certainty.
Which is better for debt consolidation?
A home equity loan is generally better for debt consolidation because you receive the exact amount needed to pay off debts, at a fixed rate, with a predictable payoff timeline. A HELOC works but carries rate risk — if rates rise, you might end up paying more than the credit cards you consolidated. The discipline required to not re-borrow from a HELOC is also a risk for some borrowers.
Can I lose my home with a HELOC or home equity loan?
Yes — both are secured by your home. If you fail to make payments, the lender can foreclose. This is the critical difference between home equity products and unsecured personal loans. Borrow only what you can reliably repay. Do not use home equity for speculative investments or purchases that don’t add lasting value.
What is the prime rate and how does it affect my HELOC?
📚 The prime rate is the benchmark interest rate that major US banks charge their most creditworthy customers. It is set at approximately 3 percentage points above the Federal Reserve’s federal funds rate. Currently the prime rate is 6.75%. Most HELOCs are priced at Prime + a margin (e.g., Prime + 0.46% = 7.21%). When the Fed raises rates, prime rises, and your HELOC rate rises with it automatically — usually within one to two billing cycles.
Disclaimer: Results are estimates for educational purposes only. Variable rate scenarios are hypothetical and not predictions. This is not financial advice. State Loan Rates is not a lender. Full disclaimer