What is the difference between a HELOC and a home equity loan?

A home equity loan disburses a lump sum, typically at a fixed rate, repaid over a set term in equal installments. It suits a known one-time expense such as a defined renovation or a debt consolidation of a specific amount. A home equity line of credit works like a credit card secured by your home: you are approved for a limit, draw as needed during a draw period commonly lasting ten years, and pay interest only on what you have drawn, usually at a variable rate. After the draw period ends, the repayment period begins and the payment jumps to include principal, which is a documented source of payment shock for borrowers who treated the interest-only years as the normal state.

The choice between them is mostly about certainty versus flexibility. Fixed rate and fixed payment against variable rate and variable access. A HELOC makes sense for staged expenses like a renovation with unknown final cost, or as a standby emergency facility. A home equity loan makes sense when you know the number and want the payment locked. Some lenders offer HELOCs with the option to fix portions of the balance, which blends the two.

The consideration that outweighs the structural comparison: both are secured by your home, so default risk is foreclosure rather than collections. That makes using either to consolidate credit card debt a genuine trade rather than an obvious win, since you are lowering the rate while converting debt that could be discharged or negotiated into debt that can take your house. Two further notes. Lenders can and do reduce or freeze HELOC availability when property values fall or your credit changes, which happened widely in 2008 and means treating an undrawn line as guaranteed emergency access carries risk. And interest is tax deductible only when the funds are used to buy, build, or substantially improve the home securing the loan, not for general purposes, which is a change many borrowers have not registered.