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Home Equity Loan vs. HELOC Calculator

Find out whether a lump-sum home equity loan or a revolving HELOC costs you less in interest over the life of the borrowing.

Inputs

$

The lump sum you need — treated as the HELOC's full drawn balance throughout.

%

The fixed annual interest rate on the home equity loan.

%

The HELOC's current variable rate. This calculator holds it constant during the draw period — real HELOC rates fluctuate with the prime rate.

%

Expected rate after the draw period ends. Often higher than the draw rate in rising-rate environments.

The total length of the HELOC (draw + repayment). Also used for the HEL term.

How long you can draw funds and make interest-only payments. Must be shorter than the total term.

Results update as you type, and the address bar keeps your numbers so the link you share reopens this exact calculation.

Total interest difference (HEL minus HELOC)

-$7,158

The HELOC costs more in total interest than the home equity loan.

Detailed results
HEL monthly paymentFixed P&I for all 10 years$620
HEL total interestTotal interest over 10-year fixed term$24,391
HELOC payment (draw phase, interest-only)Interest-only during 5-year draw period$333
HELOC payment (repayment phase)Fully amortising over 5-year repayment period$1,026
HELOC total interestDraw interest $20,000 + repayment interest $11,550$31,550

What this result means

Total interest difference (HEL minus HELOC): -$7,158.

The home equity loan saves you roughly $7,158 in total interest compared with the HELOC. The home equity loan charges a flat $620/month for all 10 years. The HELOC starts cheaper at $333/month (interest-only) for the first 5 years, then jumps to $1,026/month during the 5-year repayment phase.

Year-by-Year Summary

Annual payments, cumulative interest, and outstanding balance for each product. During the HELOC draw period the balance does not decrease because payments are interest-only.

Year-by-Year Summary. 10 rows, first 10 shown.
YearHEL annual paymentHELOC annual paymentHEL cumulative interestHELOC cumulative interestHEL remaining balanceHELOC remaining balance
1$7,439$4,000$4,123$4,000$46,684$50,000
2$7,439$4,000$7,952$8,000$43,074$50,000
3$7,439$4,000$11,463$12,000$39,146$50,000
4$7,439$4,000$14,626$16,000$34,870$50,000
5$7,439$4,000$17,412$20,000$30,216$50,000
6$7,439$12,310$19,786$23,928$25,151$41,619
7$7,439$12,310$21,712$27,116$19,638$32,496
8$7,439$12,310$23,151$29,497$13,638$22,568
9$7,439$12,310$24,060$31,001$7,108$11,761
10$7,439$12,310$24,391$31,550$0.00$0.00

How this is calculated

HEL payment = P × r / (1 − (1+r)^−n),  r = hel_rate/12,  n = total_term_years × 12
HELOC draw payment = P × (heloc_draw_rate/12)   [interest-only, balance unchanged]
HELOC repay payment = P × r′ / (1 − (1+r′)^−n′),  r′ = heloc_repay_rate/12,  n′ = (total_term − draw_period) × 12
HEL total interest = (HEL payment × n) − P
HELOC total interest = (draw payment × draw months) + (repay payment × repay months) − P
Interest difference = HEL total interest − HELOC total interest

Two ways to tap home equity — and why the structure matters

When you own a home worth more than you owe, a lender will let you borrow against that equity. Two products dominate the market: the home equity loan (HEL) and the home equity line of credit (HELOC). They share the same collateral — your house — but work very differently, and choosing the wrong one can cost thousands of dollars in unnecessary interest.

Home equity loan: the predictable option

A home equity loan disburses a lump sum at closing. From day one you make a fixed principal-and-interest payment every month until the loan is retired. The payment never changes, so you can build it into a household budget with certainty. The trade-off is that you pay interest on the full balance from day one, even if you do not deploy the money immediately.

HELs suit borrowers with a known, one-time need — a kitchen renovation with a fixed contractor quote, a medical bill, or a debt consolidation — where the entire sum is needed upfront and predictability has real value.

HELOC: flexible draw, repayment shock

A HELOC behaves more like a credit card secured by your home. During the draw period, typically five to ten years, you can borrow up to a set limit, repay principal, and reborrow. Many HELOCs require only interest during the draw phase, which keeps early payments low but means every dollar of principal is still owed when the draw period closes.

When the draw period ends, the outstanding balance converts into a standard amortising loan repaid over the remaining term — often called the repayment period. Because that period is shorter than the original term would have been, the monthly payment can jump sharply. Borrowers who treat a HELOC as a low-payment vehicle during the draw phase and do not plan for the repayment shock can find themselves in difficulty.

HELOCs are best suited to ongoing or uncertain cash needs — a phased renovation, tuition paid semester by semester, or a business requiring periodic capital — where drawing only what you need and repaying between draws limits the interest accrual.

Where the interest comparison gets interesting

Because the HELOC starts with interest-only payments at what is often a lower introductory rate, its total interest can look attractive in the early years. Whether it stays lower over the full term depends heavily on the repayment-period rate and how long that phase lasts. A short repayment window raises the amortising payment and concentrates interest expense into fewer months. Conversely, a long draw period at a low rate followed by a long repayment period can outperform a fixed HEL if rates remain stable.

This calculator assumes the HELOC balance is fully drawn throughout the draw period — the worst-case assumption for interest comparison. If you repay principal during the draw, your actual HELOC interest will be lower than shown.

Rate risk

HELOC rates are almost always tied to the prime rate, which moves with Federal Reserve policy. The rate you enter for the draw and repayment periods is a snapshot, not a guarantee. In rising-rate environments this can erase a HELOC's apparent cost advantage quickly. If interest-rate certainty is important, the fixed-rate HEL wins on that dimension regardless of the current-rate comparison.

Assumptions

  • The HELOC balance is assumed to be fully drawn at the start of the draw period and held constant — no redraws or mid-draw repayments are modelled.
  • HELOC rates (both draw and repayment) are treated as fixed for the entire relevant period. Real HELOCs are variable; actual interest will differ if rates change.
  • The HEL is a standard fully amortising fixed-rate loan with no prepayment.
  • No fees, closing costs, origination charges, or mortgage insurance are included in either product.
  • The repayment-period balance equals the original borrow amount because draw-phase payments are interest-only.
  • All payments are made monthly and on time; no early payoff or missed payments are modelled.
  • Tax treatment of interest is not considered; deductibility depends on use of proceeds and individual tax situation.
  • The draw period must be shorter than the total term; a minimum 1-year repayment period is enforced.

Frequently asked questions

›What is the main structural difference between a HEL and a HELOC?

A home equity loan gives you one lump sum at a fixed rate, and you repay it in equal monthly instalments for the full term. A HELOC is a revolving line of credit: you draw what you need during a draw period, make interest-only payments, and then repay the outstanding balance over a separate repayment period. The HEL is more like a second mortgage; the HELOC is more like a secured credit card.

›What is the rate risk of a HELOC?

HELOC interest rates are almost always variable, linked to the prime rate plus a margin set by the lender. When the Federal Reserve raises its benchmark rate, the prime rate and therefore your HELOC rate typically follow within weeks. A rate that rises from 7% to 9% over two years adds significant interest that this calculator does not model unless you manually enter the higher rate. Fixed-rate HELOCs exist but are rare. If rate certainty matters to you, a fixed-rate home equity loan eliminates this risk.

›When is a HELOC the better choice?

A HELOC tends to be better when your borrowing need is phased, uncertain in size, or when you expect to repay significant principal during the draw period. A multi-year renovation where costs arrive in stages, tuition paid semester by semester, or a business drawdown where capital is deployed gradually all benefit from drawing only what is needed. If rates stay flat or fall, and if you repay principal actively during the draw period, total interest on a HELOC can be meaningfully lower than a lump-sum HEL.

›Why does the HELOC payment jump at the end of the draw period?

During the draw period most HELOCs require only interest, so no principal is repaid. When the draw period ends, the full original balance must be amortised over the remaining term — which is shorter than the total loan term. Compressing the same principal into fewer months produces a higher monthly payment. The longer the draw period and the shorter the remaining repayment window, the more severe the payment increase. Planning for this shift before the draw period ends is critical.

›Are home equity loan and HELOC interest tax-deductible?

Under current U.S. tax law (Tax Cuts and Jobs Act), interest on a home equity loan or HELOC is deductible only if the proceeds are used to buy, build, or substantially improve the home that secures the loan. Interest used to consolidate credit card debt, pay tuition, or fund other expenses is generally not deductible. Consult a tax professional for guidance specific to your situation, as deductibility depends on how the funds are used and whether you itemise deductions.

›Does this calculator assume I draw the full HELOC balance on day one?

Yes. The model assumes the entire borrowed amount is outstanding throughout the draw period, which maximises HELOC interest and makes the comparison most conservative for the HELOC. If you draw the line gradually or repay principal during the draw, your actual HELOC interest cost will be lower than shown. This calculator is designed to compare the structural products at the same total borrowing, not to model repayment behaviour.

›How do I decide which product is right for me?

Start with the nature of your need: if you know exactly how much you need and want payment certainty, lean toward the HEL. If the need is phased or potentially smaller than the full amount, a HELOC gives flexibility. Then compare total interest at current rates using this calculator, stress-test the HELOC result by increasing the draw and repayment rates a point or two to approximate rate-rise scenarios, and weigh the payment-shock risk at the end of the draw period against your income stability.

›Can I convert a HELOC to a fixed-rate loan?

Many lenders offer a rate-lock or fixed-rate advance feature that converts some or all of the outstanding HELOC balance to a fixed sub-account with a set repayment schedule. Terms vary widely, and some lenders charge a conversion fee. If you are concerned about rising rates partway through the draw period, ask your lender about this option before opening the HELOC.

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