Home equity loans and HELOCs are two popular ways for homeowners to maximize their home’s equity—the difference between the home’s current market value and the remaining mortgage balance. With median home prices in the U.S. at approximately $412,000 in 2025, many homeowners have substantial equity to leverage for major expenses like home renovations, real estate investments, debt consolidation, or financing college. While both 2nd mortgage programs use your home as collateral, they differ significantly in structure, flexibility, and repayment terms.
Home Equity Loans vs HELOCs
Understanding these differences is crucial to choosing the right option for your financial needs. This article explores the distinctions between home equity loans and HELOCs, lists the top 10 lenders for each with their rates, APRs, and closing costs in 2025, provides two case studies illustrating their applications, and offers guidance on selecting the best fit.
What Is a Home Equity Loan?
A home equity loan, often called a second mortgage, provides a lump sum of money that you repay over a fixed term, typically 5 to 30 years, with consistent monthly payments. The interest rate is fixed, ensuring predictable payments, which makes budgeting easier. For example, borrowing $50,000 at a 7% fixed rate over 15 years results in a monthly payment of about $449. Home equity loans are ideal for one-time expenses, such as a major home renovation or paying off high-interest debt, because you receive the full amount upfront.
However, since your home secures the loan, defaulting could lead to foreclosure. Lenders typically allow borrowing up to 80–85% of your home’s equity, depending on your credit score (minimum 620, ideally 740+), debt-to-income (DTI) ratio (below 43%), and loan-to-value (LTV) ratio.
What Is a HELOC?
A home equity line of credit (HELOC) is a revolving line of credit, similar to a credit card, allowing you to borrow against your home’s equity as needed up to a set credit limit during a draw period, usually 10 years. During this period, you typically make interest-only payments on the amount borrowed, with variable interest rates tied to the prime rate (e.g., prime + 0.5%). After the draw period, the repayment period (10–20 years) begins, requiring principal and interest payments, which can increase significantly if rates rise.
For instance, a $50,000 HELOC at 8% variable APR might start with a $333 monthly interest-only payment but could rise to $607 in repayment if rates increase to 9%. HELOCs suit ongoing or unpredictable expenses, like phased home improvements or tuition payments, but variable rates introduce payment uncertainty. Like home equity loans, HELOCs require a minimum credit score of 620, a DTI below 43%, and sufficient equity, with foreclosure as a risk for nonpayment.
Key Differences Between Home Equity Loans and HELOCs
The primary differences between home equity loans and HELOCs lie in their structure, interest rates, and repayment terms:
| Aspect | Home Equity Loan | HELOC |
|---|---|---|
| Fund Disbursement | Lump sum at closing | Revolving credit line, draw as needed |
| Interest Rate | Fixed, predictable payments | Variable, fluctuates with prime rate |
| Repayment Structure | Fixed term (5–30 years), principal + interest | Draw period (10 years, interest-only), then repayment (10–20 years, principal + interest) |
| Best Use | One-time, large expenses (e.g., renovations) | Ongoing or variable expenses (e.g., tuition) |
| Payment Stability | Stable, fixed payments | Variable, can increase with rate hikes |
| Closing Costs | 2–5% of loan amount, similar to HELOC | 2–5% of credit line, some lenders waive fees |
Both options typically have lower interest rates than unsecured loans (e.g., personal loans at 12.65% or credit cards at 20.12% in 2025) because your home secures the debt. However, HELOCs carry the risk of rate increases, while home equity loans may have higher initial rates but offer stability. See RefiGuide Top Home Equity Loan Lenders)
Top 10 Lenders for Fixed Home Equity Loans in 2025
Below are the top 10 lenders offering fixed-rate home equity loans in 2025, based on loan volume, customer satisfaction, and competitive rates. Rates and APRs assume a $30,000 loan, 700+ credit score, and 80% LTV, but vary by borrower and location.
| Lender | Rate | APR | Closing Costs | Key Features |
|---|---|---|---|---|
| Discover | 7.79% | 7.96% | $0 | No closing costs, up to $300,000, 90% LTV max . |
| PNC Bank | 7.65% | 7.80% | 2–5% ($600–$1,500) | Flexible terms (5–30 years), no origination fees . |
| U.S. Bank | 7.50% | 7.65% | 2–5% ($600–$1,500) | 10-year terms, no annual fees with checking account . |
| Fifth Third Bank | 7.85% | 8.00% | 2–5% ($600–$1,500) | Fixed-rate lock option, no closing costs in some cases . |
| Rate | 7.70% | 7.85% | 2–5% ($600–$1,500) | No in-person appraisal, investment properties eligible . |
| BMO Harris | 7.90% | 8.05% | 2–5% ($600–$1,500) | Loans up to $150,000, fast closing . |
| Navy Federal CU | 7.60% | 7.75% | $0–1% ($0–$300) | No closing costs for members, military focus . |
| Regions Bank | 7.95% | 8.10% | 2–5% ($600–$1,500) | Fixed-rate options, available in 15 states . |
| Alliant Credit Union | 7.80% | 7.95% | $0 (up to $250,000) | No closing costs, low credit score options . |
| Truist | 7.85% | 8.00% | 2–5% ($600–$1,500) | Flexible terms, no origination fees . |
Note: National average 10-year home equity loan APR is 8.40% as of June 4, 2025. Closing costs typically range from $600–$1,500 for a $30,000 loan (2–5%). Rates require a 700+ FICO, 80% LTV, and may include discounts for autopay or existing accounts.
Top 10 Lenders for Variable Rate HELOCs in 2025
Below are the top 10 lenders offering variable-rate HELOCs in 2025, based on rates, fees, and borrower experience. Rates and APRs assume a $30,000 credit line, 700+ credit score, and 80% LTV.
| Lender | Rate | APR | Closing Costs | Key Features |
|---|---|---|---|---|
| Bank of America | 6.99%* | 6.99%* | $0 | No closing costs, 0.25% autopay discount, intro rate for 6 months . |
| PNC Bank | 7.50% | 7.50% | $0–1% ($0–$300) | No origination fees, fixed-rate lock option . |
| U.S. Bank | 7.95% | 7.95% | $0–1% ($0–$300) | $75 annual fee waived with checking, fixed-rate option . |
| Truist | 5.99%* | 5.99%* | $0–1% ($0–$300) | 9-month intro rate, no origination fees . |
| Citizens Bank | 7.88% | 7.88% | $0–1% ($0–$300) | 5.99% intro for 6 months, low $5,000 minimum . |
| Navy Federal CU | 7.75% | 7.75% | $0 | No closing costs, military-focused, 3.99% minimum APR . |
| Regions Bank | 4.99%* | 4.99%* | $0–1% ($0–$300) | 6-month intro rate, fixed-rate lock option . |
| BECU | 5.99%* | 5.99%* | $0–1% ($0–$300) | 6-month intro rate, rates 7.74%–10.59% post-intro . |
| Alliant Credit Union | 7.63% | 7.63% | $0 (up to $250,000) | No closing costs, 10-year draw period . |
| Fifth Third Bank | 7.80% | 7.80% | $0 | No closing costs, fixed-rate lock for $95 fee . |
Note: National average HELOC APR is 8.27% as of June 4, 2025. Closing costs range from $0–$300 for a $30,000 line (0–1%), with many lenders waiving fees. Introductory rates (*) apply for 6–9 months, then revert to 7.50%–15.125% based on credit and prime rate.
Example #1: HELOC for Ongoing Home Renovations
Borrower: Lisa, a homeowner in Georgia.
Situation: Lisa wanted to renovate her $350,000 home over two years, with estimated costs of $40,000 for a kitchen remodel and $20,000 for a bathroom upgrade. She had $100,000 in equity (mortgage balance: $250,000) and a 720 credit score.
Action: Lisa chose a HELOC from Bank of America with a $60,000 credit limit, a 6.99% introductory APR for six months, and no closing costs. She drew $40,000 initially for the kitchen, paying $233 monthly (interest-only). After six months, the rate rose to 7.88%, increasing her payment to $263. She drew $20,000 for the bathroom a year later, with payments adjusting to $394 for the total $60,000.
Outcome: The HELOC’s flexibility allowed Lisa to borrow only what she needed, when she needed it, keeping payments low during the draw period. The renovations increased her home’s value to $400,000, boosting her equity. She plans to pay down the principal during the 20-year repayment period to manage costs if rates rise.
Example #2: Home Equity Loan for Debt Consolidation
Borrower: Mark, a homeowner in Maryland.
Situation: Mark owed $35,000 in credit card debt at 20% interest, costing $700 monthly. His $400,000 home had $120,000 in equity (mortgage balance: $280,000), and his credit score was 740.
Action: Mark took a $35,000 home equity loan from Discover at a fixed 7.96% APR for 15 years, with no closing costs. His monthly payment was $335, significantly lower than his credit card payments. The fixed rate ensured stable payments, simplifying budgeting.
Outcome: Mark paid off his credit card debt, saving $365 monthly ($4,380 annually). The predictable payments allowed him to allocate savings to an emergency fund. The loan’s fixed term ensured the debt would be cleared in 15 years, and his home’s value remained stable, preserving equity.
Choosing Between a Home Equity Loan and HELOC
Deciding between a home equity loan and a HELOC depends on your financial goals, risk tolerance, and expense type:
- Choose a Home Equity Loan If:
- You need a specific amount for a one-time expense (e.g., debt consolidation, major renovation).
- You prefer predictable, fixed payments for easier budgeting.
- You want to avoid the risk of rising interest rates.
- Choose a HELOC If:
- You have ongoing or uncertain expenses (e.g., phased projects, tuition).
- You value flexibility to borrow only what you need, when you need it.
- You’re comfortable with variable rates and potential payment increases.
- Considerations:
- Equity and LTV: Most lenders require 15–20% equity and an LTV below 80–85%. Use a home equity calculator to estimate your borrowing limit.
- Credit and DTI: A 620+ credit score and DTI below 43% are standard, but 740+ scores secure better rates.
- Costs: Both products have closing costs (2–5% for loans, 0–1% for HELOCs), though some lenders like Discover and Bank of America waive them.
- Risks: Defaulting risks foreclosure, and HELOCs may lead to higher payments if rates rise. The Federal Reserve’s rate cuts in 2024 lowered HELOC rates, but future increases are possible.
- Tax Benefits: Interest may be tax-deductible if used for home improvements, per IRS rules (consult a tax advisor).
Practical Steps to Get Home Equity Loans or HELOCs
- Calculate Equity: Subtract your mortgage balance from your home’s appraised value (use tools like Zillow or a professional appraisal).
- Check Credit and DTI: Review your credit score and calculate DTI to ensure eligibility.
- Compare Lenders: Get quotes from at least three lenders, focusing on APR, fees, and terms. Online lenders like Rate offer fast approvals, while credit unions like Navy Federal provide low-cost options.
- Apply: Provide income proof (W-2s, tax returns), property details, and mortgage statements. Expect underwriting to take 1–6 weeks.
- Review Terms: Read disclosures for APR, repayment terms, and fees. For HELOCs, confirm draw and repayment periods and fixed-rate options.
- Close and Access Funds: Home equity loans disburse funds at closing; HELOCs provide access via checks, cards, or online transfers.
Home equity loans and HELOCs provide cost-effective ways to access your home’s equity, with lower rates than unsecured debt. Home equity loans offer fixed rates and predictable payments, ideal for one-time expenses, while HELOCs provide flexibility with variable rates, suiting ongoing needs. Top lenders like Bank of America and LoanDepot offer competitive rates and low or no closing costs in 2025, but borrowers must weigh the risk of foreclosure and, for HELOCs, potential rate hikes. By assessing your financial situation, comparing lenders, and aligning the product with your goals, you can make an informed choice. Consult a financial advisor to ensure the decision supports your long-term financial health.
References
Bankrate. (2025, June 4). Current home equity loan rates in June 2025.
RefiGuide. (2025, April 4). Home equity loan vs. HELOC: What’s the difference?
Consumer Financial Protection Bureau. (2024, October 31). CFPB Home equity loans and home equity lines of credit.
Investopedia. (2025, March 1). Comparing your options.
PNC Bank. (2025, March 31). Home equity line of credit (HELOC).
