Equity Line of Credit vs Home Equity Loan

An equity line of credit (HELOC) lets you borrow repeatedly up to an approved limit, while a home equity loan generally provides a lump sum repaid in scheduled installments. This calculator compares their estimated monthly payments and total interest using the amounts, APRs, and repayment terms you enter; it does not determine eligibility or lender terms.

Formula

This comparison models each borrowing option as a separate fixed-rate, fully amortizing loan. For either loan, the monthly payment is:

PMT = P × r ÷ [1 − (1 + r)⁻ⁿ]

• P is the amount borrowed or drawn, in dollars.
• r is the monthly interest rate, calculated as annual APR ÷ 1,200.
• n is the number of monthly payments, calculated as years × 12.
• PMT is the estimated monthly principal-and-interest payment, rounded to cents.

The first result is HELOC payment minus home equity loan payment: a positive amount means the modeled HELOC payment is higher, while a negative amount means it is lower. The next two results show each payment separately. Combined interest is the sum of each modeled payment multiplied by its months, minus the original principal for each loan. The inputs allow different amounts, APRs, and terms, so the comparison reflects the figures entered rather than a universal product difference.

Worked Example

Using the defaults, both options have a $20,000 balance, an 8% APR, and a five-year repayment term. The monthly rate is 8 ÷ 1,200 = 0.0066667, and the term is 5 × 12 = 60 payments.

For either loan, PMT = 20,000 × 0.0066667 ÷ [1 − (1 + 0.0066667)⁻⁶⁰] = $405.53 after rounding to cents. The payment difference is $405.53 − $405.53 = $0.00. Each modeled loan’s total interest is $405.53 × 60 − $20,000 = $4,331.80, so combined estimated interest is $8,663.60. These matching results arise because all three assumptions—principal, APR, and term—are identical; actual products can have different terms, rate structures, fees, and payment rules.

Assumptions

• Each balance has a fixed APR for the full modeled repayment period.
• Payments are equal monthly payments, made at the end of each monthly period.
• Interest compounds monthly at APR divided by 12.
• The estimate excludes fees, taxes, insurance, escrow, and any costs or charges not entered.
• The HELOC is treated as if the full entered draw is outstanding from the start and repaid in equal installments. It does not model a changing balance or draw period.

How the Two Options Work

A home equity loan generally advances a specified amount at closing. The borrower receives the proceeds, then repays principal and interest on a schedule. Depending on the contract, the interest rate may be fixed or variable; check the actual loan disclosure rather than assuming a particular structure.

A HELOC is a revolving credit line secured by home equity. During a draw period, the borrower can usually take funds as needed up to the available credit limit, and repaid amounts may become available again under the agreement. After the draw period, access to additional funds may end and repayment terms apply. Some contracts have variable rates, and payment amounts may change when the rate or outstanding balance changes. The calculator simplifies this by treating the entered draw as a fixed-rate installment balance.

Both products use the home as collateral. Falling behind can therefore put the home at risk, subject to the contract and applicable rules. The approved credit line is not necessarily the amount a borrower should draw, and the home’s estimated equity alone does not establish approval.

Comparing Costs and Payment Patterns

For a fair arithmetic comparison, enter the amount you expect to borrow, not automatically the maximum line or loan offered. If the HELOC will be drawn in stages, borrowing the entire amount on day one can overstate early interest compared with a gradual draw. Conversely, a payment-only comparison can understate later costs if a HELOC’s rate rises, its repayment structure changes, or a large balance remains when the draw period ends.

• Payment certainty: A fixed-rate installment schedule gives a more predictable principal-and-interest payment. A variable-rate line may produce changing payments.
• Access to funds: A line can support expenses that arrive at different times, while a lump-sum loan provides the amount up front.
• Borrowing discipline: A reusable credit limit can make additional borrowing possible; consider how new draws affect the balance and repayment.
• Total cost: Compare the full schedule and disclosed charges, not just the first payment or advertised APR. Fees and product-specific terms are not included in this calculator.

For example, imagine renovation work billed in three stages. A HELOC may let a borrower draw funds as invoices arrive, whereas a lump-sum loan may release the modeled amount at once. If the project instead has a single known cost, the amount-and-payment comparison is more direct. Neither example establishes which product fits a particular person.

Choosing Inputs and Understanding Limits

Use the lender’s quoted APR and repayment term when available, and keep the borrowing amounts comparable. If comparing different amounts, interpret the payment difference cautiously: it may reflect the principal difference rather than a product feature. The combined-interest output is only meaningful as a comparison when the amounts and modeled periods represent the borrowing being considered.

This is an educational estimate, not a quote or approval decision. It does not model a HELOC’s draw period, interest-only payments, changing APR, variable balance, minimum-payment rules, introductory terms, or fees. It also assumes that a home equity loan has level monthly payments, even though actual contracts can differ. Ask the lender for the payment schedule, rate-change terms, fees, and total repayment figures applicable to the specific offer.

Frequently Asked Questions

Is an equity line of credit the same as a home equity loan?
No. A HELOC is a revolving credit line that can generally be drawn as needed under its terms. A home equity loan usually advances a lump sum that is repaid in installments.

Which has a lower monthly payment?
There is no answer that applies to every offer. Payment depends on the balance, APR, repayment period, and payment rules. A HELOC payment can also change as its rate or balance changes.

Can a HELOC have a fixed interest rate?
Rate structures depend on the contract. Some lines may offer variable rates, while other arrangements may allow fixed-rate portions or conversions. Read the lender’s disclosure for the specific terms.

Does this calculator include the HELOC draw period?
No. It treats the entered draw as a fully outstanding balance repaid over the entered term. It does not calculate draws made at different times or separate draw- and repayment-period rules.

Are closing costs and fees included?
No. The calculator uses principal and APR only. Obtain the lender’s itemized charges and payment schedule to understand costs beyond modeled principal and interest.

The result is an estimate; the lender’s disclosure gives the exact figures.

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in lp | HELOC amount drawn | $ | 20000 | 0 | 100000000
in la | HELOC APR | % | 8 | 0.01 | 100
in ly | HELOC repayment term | years | 5 | 0.0833 | 50
in hp | Home equity loan amount | $ | 20000 | 0 | 100000000
in ha | Home equity loan APR | % | 8 | 0.01 | 100
in hy | Home equity loan term | years | 5 | 0.0833 | 50
out diff | HELOC payment minus home equity loan payment | $ | round(lp * (la / 1200) / (1 - (1 + la / 1200) ^ -(ly * 12)), 2) - round(hp * (ha / 1200) / (1 - (1 + ha / 1200) ^ -(hy * 12)), 2) | 2
out lpm | HELOC estimated monthly payment | $ | round(lp * (la / 1200) / (1 - (1 + la / 1200) ^ -(ly * 12)), 2) | 2
out hpm | Home equity loan estimated monthly payment | $ | round(hp * (ha / 1200) / (1 - (1 + ha / 1200) ^ -(hy * 12)), 2) | 2
out ti | Combined estimated interest | $ | (lpm * ly * 12 - lp) + (hpm * hy * 12 - hp) | 2