HELOC vs home equity loan

By David Chen · Published October 3, 2026

Both products let you borrow against the part of your home you own. Both are secured on the property. They are usually compared on the things that differ on the surface — a variable rate against a fixed one, a line you draw on against a lump sum — and that comparison misses where the money actually goes.

Below, $60,000 borrowed three ways. To keep the comparison honest, every version carries the same 8.00% rate: the only things that change are the structure of the draw and how long the repayment runs.

The same $60,000, three ways

The two HELOC rows are the same product, at the same rate, on the same balance — and they differ by a factor of almost four. The interest-only line costs $108,447; the amortising line costs $27,356. Nothing about which product you chose explains that gap. What explains it is whether the balance went down while you were making payments.

Why interest-only costs that much

An interest-only draw does exactly what the name says. On $60,000 at 8.00% the monthly charge is $400, and after ten years of paying it you have paid $48,000 in interest and still owe $60,000. The second phase then repays that untouched balance over whatever term remains, so you pay interest on the full amount for the whole thirty years rather than on a shrinking balance.

The comparison with the amortising version is not about discipline being rewarded. It is arithmetic: in the amortising case the outstanding balance falls every month, so every month's interest charge is smaller than the last. In the interest-only case the charge never falls, because the thing it is charged on never falls.

The fixed home equity loan sits between the two because it amortises from day one — but on a longer schedule than the amortising HELOC, and with a payment that is lower than that HELOC's precisely because it takes longer to clear the balance. On a $60,000 balance the fixed loan costs $43,210 and the ten-year amortising HELOC costs $27,356, and the difference is the term rather than the product.

The payment shock at the end of the draw

This is the number worth knowing before signing, because it arrives on a date that is usually a decade away when the paperwork is signed. At the end of a ten-year interest-only draw you owe $60,000 and must repay it over the twenty years that remain. What that does to the payment depends on where rates are by then:

Even with rates exactly where they started, the payment rises by 25.47% — from $400 to $501.86 — because you now have to clear the balance as well as service it. If rates are three points higher at that moment, the payment is $619.31, up from $400. A decade of paying $400 a month is a poor preparation for a $619.31 obligation.

Nothing about this is hidden; it is in the terms. It is simply easy to discount when it is ten years away, and it lands at the same time as whatever the money was borrowed for has finished being useful.

If rates move during the draw

A variable-rate line moves before that. On the same $60,000, an interest-only payment at 8.00% is $400; at 11.00% it is $550 — a 37.5% increase in the monthly cost, with the balance still exactly $60,000 either way. The fixed home equity loan cannot do that to you, and in exchange it cannot do you the favour either if rates fall.

That asymmetry is the actual decision. A fixed loan converts a rate you cannot control into one you can plan around; a line keeps both possibilities open. If the borrowing has a specific end date and a known amount, the fixed shape usually matches it. If you genuinely need to draw, repay and redraw — a staged renovation, for instance — the line is the only structure that fits, and the repayment phase should be budgeted for from the start rather than discovered later.

Two things worth checking before either one

• What secures the debt. Both of these put your home behind the borrowing. That is why the rates are lower than an unsecured personal loan, and it is also why the consequences of not paying are larger. Compare the unsecured alternative before deciding that the cheaper rate is the whole story.
• What the repayment phase costs you. Run the interest-only version on paper before accepting it: $48,000 of interest over ten years and a balance that has not moved is the outcome, and it is worth seeing that number before it is contractual rather than after.

If the reason for borrowing is a renovation or an extension, the improvement may also change what the property is worth — which affects both your loan-to-value ratio and, on a mortgage, whether mortgage insurance can be removed. The mortgage calculator handles the interaction between the two loan payments, and how to pay off a loan early covers what happens if you decide to attack the balance rather than the schedule.

The short version

On $60,000 at 8.00%, an interest-only HELOC costs $108,447 in interest — 2.51 times what a fixed home equity loan costs, and almost four times what the same HELOC costs if you amortise it over the draw. Interest-only for ten years means paying $48,000 and still owing $60,000, and the payment then rises to $501.86 even if rates have not moved. The product names decide very little. Whether the balance falls during the draw decides almost everything.

Frequently asked questions

This guide is educational and is not financial advice. Figures were produced by our calculator and independently recomputed before publication; your lender's own documents govern your loan. Spot an error? Tell us — see also our disclaimer.