Compare Home Equity Options: HELOCs and Home Equity Loans
Home equity is the difference between what your home is worth and what you owe on it. Explore how borrowing against that equity works and what you could use it for.
Compare Home Equity Options →
First lien or second lien?
A lien is a lender’s claim against your property. Lien position determines which lender gets paid first from the proceeds if the home is sold to repay the debts.
First lien
The financing holds the primary claim on your home. Some home equity options can take first position if you own the home outright or the new financing pays off your existing mortgage.
Second lien
The financing sits behind your first mortgage and has its own payment. This can be a way to borrow separately while keeping the rate and terms on your existing mortgage.
How lenders calculate LTV and CLTV
Say your home is valued at $400,000, you owe $200,000 on your first mortgage, and you’re considering a $50,000 home equity loan as a second lien.
- Loan-to-value (LTV) compares one loan with the home’s value. The first mortgage alone is $200,000 ÷ $400,000 = 50% LTV.
- Combined loan-to-value (CLTV) counts both loans. Add the $50,000 second lien to the $200,000 first mortgage, then divide $250,000 by $400,000 = 62.5% CLTV.
With a HELOC, the lender may count the full credit limit when reviewing combined financing, even if you draw less. This example illustrates the math. The lender confirms the value and borrowing limits for your scenario.
How much you can borrow depends on your property value, existing balances, and program requirements. In either lien position, your home secures the financing, and missed payments can put it at risk.
Home Equity Calculator
Enter whole-dollar estimates to see how much of your home’s value is already financed and how much room you may have to borrow.
Borrowing room equals your home value times the assumed limit, minus existing home-secured balances. This is a planning estimate. A lender may use a different property value, count the full limit on an existing HELOC, and apply other qualification rules. Your entries stay in this browser.
What can you use home equity for?
Home improvements
Pay for a remodel, a roof replacement, or repairs that happen in stages.
Debt consolidation
Combine existing balances into one payment. Compare the total cost, and consider the risk of using your home as collateral to pay off unsecured debt.
Major planned expenses
Cover costs such as tuition or a large one-time purchase. Consider how the new payment fits your budget over time.
HELOC vs. Home Equity Loan
Both let you borrow against your home equity. The biggest differences are how you receive the funds, whether you can borrow again, and how your payment can change.
Scroll the table sideways to see both options.
| Feature | Home Equity Line of Credit (HELOC) | Home Equity Loan |
|---|---|---|
| How you get the money | Borrow against a credit limit. Some plans require a minimum or full draw at closing. | Receive the loan amount in one lump sum at closing. |
| Borrowing again | You may draw again during the draw period, subject to available credit and the plan’s rules. | Paying down the balance does not free up funds to borrow again. |
| Interest rate | Often variable. Some plans offer a fixed rate on certain draws. | Fixed-rate options keep the interest rate the same for the loan term. |
| Monthly payment | Payments can change with the rate, the amount borrowed, or the start of principal repayment. | With a fixed-rate, fully amortizing loan, the scheduled principal-and-interest payment stays the same. |
| Repayment | Some plans allow interest-only payments for a time. Check when you can draw and when principal repayment starts. | Scheduled payments typically include principal and interest from the start and pay off the loan over a set term. |
| When it may fit | A project with expenses spread over time, if the initial draw and later access rules fit your plans. | A one-time expense when you know how much you need and want a predictable payment. |
Either option can be structured as a second lien, depending on the program. Your home secures the financing in both cases.
Get a fast online prequalification decision. Closing timing depends on verification and property review. Opens in a new tab.
How cash-out refinancing differs
A cash-out refinance replaces your first mortgage with a larger loan and gives you a portion of the proceeds. Compare the new mortgage’s rate, payment, and closing costs with the combined payments and costs of keeping your first mortgage and adding a second lien.