HELOC vs Home Equity Loan: Which Saves YOU Money?

Your bank will offer you two ways to get at your equity. They are not the same product. A HELOC quotes you $645.83 a month. A home equity loan quotes $883.71. Almost everybody takes the cheaper one — and the cheaper one also has the LOWER interest rate, and costs $62,437 more. Both are true at once. Here is why — and the one question that decides yours. THE TWO PRODUCTS A HELOC is a credit line: draw what you need, pay interest only on what is out, draw again. Variable — an index plus a margin. A home equity loan is a lump sum at a fixed rate, with a payment that never changes. Both sit behind your existing mortgage without touching it. That is why they came back: nobody with a 3% first is giving it up. HOW MUCH YOU CAN BORROW Appraised value, times the ceiling your lender allows, minus what you owe. On a $600,000 home with $380,000 owed, an 80% ceiling gets you $100,000 and a 90% ceiling gets you $160,000. No federal rule sets that ceiling — it is each bank's credit policy, which is why three banks give three answers. THE PAYMENT THAT IS NOT A PAYMENT Interest-only means the whole payment is rent on the money. Ten years of paying $645.83 is $77,500 out of your account — and on the last day of the draw you owe exactly $100,000. The number you started with. The HELOC is not the cheaper loan. It is the deferred loan — a fine thing to buy, but not a discount. THE NUMBER ALREADY IN YOUR PAPERWORK Regulation Z requires your lender to hand you, at application, an example showing the payment during the draw and what it becomes afterward — plus the payment at the highest rate your contract allows. Both examples are written on a $10,000 balance — the number the rule specifies. So find it and move the decimal point: at an 18% cap, $154.33 on $10,000 becomes $1,543.31 on a $100,000 line. And that cap is not a favour you ask for. Regulation Z says a creditor SHALL include the maximum rate that may be imposed during the term, in any consumer credit contract secured by a dwelling where the rate can rise. It is already in there. THE FAIR TEST Not payment against payment. Dollars paid PLUS what you still owe on the same date — so nobody gets credit for deferring. Gone in 5 years, the HELOC is ahead by $4,800. At 15 years the fixed loan is ahead by almost $11,000; at 30, by $62,000. The crossover is 10.5 years — on a 10-year draw. The advantage lasts exactly as long as the deferral does. So the question is not what is my rate. It is how fast will this actually be gone. One point higher and the HELOC leads 4.8 years, not 10.5. Two points, 2.1. That is what a variable rate costs. THEY CAN FREEZE A LINE Regulation Z lists exactly six circumstances. The first two are a significant drop in your home's value and a material change in your finances — which arrive together, and at the same time you need the money. A funded home equity loan cannot be frozen at all. DO NOT REFINANCE YOUR WHOLE MORTGAGE FOR THIS Keep a 3.75% first and add a second at 8.75%: $2,837.41 a month, blended 4.792%. Refinance the lot at 6.75%: $3,113.27. Keeping your first saves $275.86 a month, before closing costs. TWO THINGS YOU ARE ENTITLED TO Three business days to cancel either product on your primary home. On a rental or second home, none. And the tax rule people get backwards: interest is deductible only to the extent the money was used to buy, build, or substantially improve the home securing the loan. Paying off cards does not qualify. CHAPTERS 0:00 Two loans, $62,437 apart 1:44 What each one actually is 3:09 The versions, one brochure 4:52 How much you can borrow 5:55 The payment that is not a payment 8:29 The step-up is in your paperwork 10:17 The cap is in your contract 12:25 The fair test, and the crossover 14:02 They can freeze a line 15:45 Do not refinance the whole thing 17:19 3 days to cancel, and the tax myth 18:50 Who should not do either 📅 WORK WITH ME — want me to run your numbers? Book a free call: https://brokerdave.com/book 🧮 FREE HELOC VS. HOME EQUITY LOAN CALCULATOR — which one is actually cheaper for you: https://brokerdave.com/heloc-vs-home-... 📧 Not ready for a call? Email me: ask@brokerdave.com 📱 SAVE MY CONTACT — https://lurbee.com/c/david-lurvey 📘 MY BOOK — DSCR Loans Made Simple: https://amzn.to/4gRPRDt Every figure is an example, not a quote or an offer of credit. HELOC: 7.75% variable APR = Prime 6.75% (Federal Reserve H.15, 2026-08-14) plus a 1.00% margin, 18% lifetime cap, 120-month interest-only draw then 240 months of repayment, $0 closing costs, $75 annual fee. Home equity loan: 8.75% fixed APR, 240 months, $2,500 closing costs. ON A HELOC THE RATE IS VARIABLE AND THE PAYMENT CAN INCREASE. No down payment applies — neither is a purchase. Tax treatment is general information, not tax advice. David Lurvey | NMLS 410420 | Equal Housing Lender | educational, not personalized financial advice