A home equity loan quotes a fixed payment; a HELOC quotes an interest-only payment that barely dents the balance. This calculator runs both against the same loan amount and term — including the payment jump at the end of the HELOC draw period — so you compare total interest, not two incomparable monthly numbers.
HELOC rates are variable and track the prime rate — use the rate you expect to average, not today's teaser rate.
Typical draw periods run 5-10 years; after the draw the balance amortizes over the remaining term.
| Scenario | HEL total interest | HELOC total interest | Gap |
|---|---|---|---|
| $60k, 15-yr HEL at 7.5% vs HELOC at 8.5% with a 3-yr draw | $40,117 | $51,209 | $11,091 |
| $40k, 20-yr HEL at 6.9% vs HELOC at 8.0% with a 5-yr draw | $33,854 | $44,807 | $10,953 |
| $15k, 10-yr HEL at 8.2% vs cheaper HELOC at 7.5% | $7,030 | $7,243 | $213 |
| $100k, 20-yr HEL at 7.0% vs HELOC at 8.75% with a 10-yr draw | $86,072 | $137,892 | $51,820 |
Every figure above is generated by the same formula the calculator runs: HEL amortizes the full amount over its term; the HELOC accrues interest-only for the draw period, then amortizes the original balance over the remaining years. Rates shown are 2026 home-equity averages.
A HELOC only wins when its rate is meaningfully below the fixed HEL rate. In the $15,000 / 10-year row the HELOC rate is 0.7 points cheaper and the gap collapses to a few hundred dollars; add a single rate reset and the fixed loan is ahead again. In the $100,000 / 10-year-draw row, the interest-only period quietly costs an extra $51,820 because the balance never amortizes for a decade.
A home equity loan (HEL) is a closed-end second mortgage: you receive a lump sum and repay it with a fixed payment over a fixed term. A home equity line of credit (HELOC) is open-end: you draw as needed, and during the draw period most lenders bill interest only. That is why the HELOC looks cheaper in month one — the payment is smaller because no principal is being repaid.
Because the HEL amortizes from day one, its average balance is lower for the whole term, so less interest accrues. A HELOC must beat the HEL rate by roughly 1 to 1.5 percentage points just to break even — and HELOC rates are variable, so that edge is not guaranteed. This calculator holds the HELOC rate constant, which favors the HELOC; a realistic rate path makes the fixed loan look better still.
Closing costs, annual fees, and the draw-period usage pattern. HELOCs frequently carry no closing cost but a $50-$100 annual fee and an early-closure penalty; a HEL typically runs 2%-5% of the loan in closing costs. If you will only draw part of the line, or repay it within a few years, a HELOC's flexibility can outweigh the interest difference — model that by shortening the term, not by trusting the monthly payment alone.
Lenders quote HELOCs by their interest-only payment because it is the smallest number in the room. On a $60,000 line at 8.5% that is $425 — $131 less than the $556 fixed payment on a 15-year HEL. Homeowners consistently read that gap as "the HELOC is cheaper." Over the full term the same $60,000 costs $51,209 in HELOC interest versus $40,117 on the fixed loan, a difference of $11,091 in the opposite direction.
The reason is arithmetic, not salesmanship. Interest accrues on the outstanding balance, and the HELOC's balance does not fall during the draw. Every month of interest-only billing keeps the full $60,000 working against you. The fixed loan retires principal from month one, so its average balance — and therefore its interest — declines steadily.
Compare on three numbers instead of one: total interest over the full term, the payment after the draw period ends, and the worst-case payment if the variable rate resets upward. A HELOC that looks $11,000 cheaper in month one is usually $11,000 more expensive by the end.
| Feature | Home equity loan (HEL) | HELOC |
|---|---|---|
| Rate type | Fixed | Variable (prime-based) |
| Payment structure | Fully amortizing from month 1 | Interest-only draw, then amortizing |
| Typical 2026 rate | 7.0% - 8.5% | 7.5% - 9.5% (prime + 0-1%) |
| Closing costs | 2% - 5% of loan | Often $0, sometimes annual fee |
| Best for | One-time expense, known budget | Staged draws, short holding period |
| Payment shock risk | None | High at end of draw, plus rate resets |
Usually not on total interest, even at a lower rate, because the interest-only draw period delays principal repayment. A HELOC wins when you need staged draws, will repay quickly, or get a rate at least 1-1.5 points below the fixed HEL.
It jumps. The remaining balance is re-amortized over the repayment period, typically 10-20 years. On a $60,000 balance at 8.5% the payment goes from $425 interest-only to $666 fully amortizing.
Only if the funds are used to buy, build, or substantially improve the home securing the loan, and the combined debt stays under the $750,000 limit. Using the money for debt consolidation or a car is not deductible under current rules.
Most lenders want a combined loan-to-value of 80%-85%, so you typically need 15%-20% equity. Some credit unions go to 90% CLTV with a higher rate or a smaller line.
A HELOC. You pay mostly interest either way, and the HELOC usually has lower upfront cost and no prepayment penalty. A fixed HEL only pulls ahead over a longer holding period.
⚠️ Important: This calculator compares interest cost only, holding the HELOC rate constant across the draw and repayment periods. It excludes closing costs, annual fees, early-closure penalties, and lender-specific draw rules, and it does not model rate resets. A HELOC's variable rate can move 1-2 points in a single year. Use the result to size the trade-off, then confirm actual terms and APR with each lender before borrowing against your home.