Home Equity Loan vs Personal Loan vs HELOC
Updated April 2026 · Rates from Bankrate, Fed G.19, IRS Publication 936
Three products, three risk profiles. A home equity loan is a fixed-rate second-lien lump sum. A HELOC is a revolving variable-rate second-lien line. A personal loan is unsecured. The decision hinges on how much you need, how long you need it, and whether you are willing to put the house on the line.
Three-way comparison
| Feature | Home equity loan | HELOC | Personal loan |
|---|---|---|---|
| Type | Secured (2nd lien) | Secured (2nd lien) | Unsecured |
| April 2026 benchmark | 7.91% (Bankrate) | 7.09% (Bankrate) | 12.26% (Fed G.19, March 2026) |
| Rate type | Fixed | Variable (Prime + margin) | Fixed (usually) |
| Disbursement | Lump sum at closing | Draw as needed during draw period | Lump sum at funding |
| Max amount | 85% CLTV typical | 85% CLTV typical | Up to $100,000 typical |
| Term length | 5 to 20 years | 10-year draw + 20-year repay typical | 1 to 7 years |
| Tax deductible | If used for qualifying home improvement (IRS Pub 936) | If used for qualifying home improvement (IRS Pub 936) | No |
| Home at risk? | Yes: foreclosure on default | Yes: foreclosure on default | No |
| Approval speed | 2 to 4 weeks (appraisal + title) | 2 to 4 weeks | Same day to 3 days |
| Closing costs | $500 to $2,000+ | $0 to $500 typical | Origination fee 0 to 8% |
Tax deduction rules (IRS Publication 936)
The 2017 Tax Cuts and Jobs Act narrowed the home-equity interest deduction. Current rules:
Home equity loan or HELOC interest is deductible when the proceeds are used to buy, build, or substantially improve the home that secures the loan. Adding a room, renovating a kitchen, replacing a roof typically qualifies. You must itemise deductions.
Home equity interest is not deductible when the proceeds are used for debt consolidation, tuition, a wedding, medical bills, a vacation, or any purpose unrelated to the home. The old pre-2017 rule allowing deduction for any purpose was repealed and has not returned.
The line between substantial improvement and repair or maintenance is fact-specific. Structural improvements generally qualify; painting and routine maintenance generally do not. A CPA can confirm for your project before you commit to the loan.
Worked example: $40,000 consolidation over 10 years
Home equity loan at 7.91% (Bankrate April 2026) vs unsecured personal loan at 12.26% (Fed G.19 March 2026).
Lifetime cost: $58,009
Lifetime cost: $69,589
HELOC mechanics: draw, repay, reset
- Draw period. Typically 10 years. You can borrow up to the credit limit and pay interest-only in some products, or interest + partial principal in others.
- Repayment period. When the draw period ends, the line is frozen to new borrowing and the outstanding balance amortises over the remaining term (often 20 years). This can cause a meaningful payment shock if you had been paying interest-only.
- Rate reset. HELOCs are typically Prime + a fixed margin. Prime is 6.75% as of April 2026. If Prime moves, your rate moves the following cycle.
- Lender rights. HELOC lenders can freeze or reduce the credit line if they determine home value has dropped materially or your creditworthiness has deteriorated. Freezes were widely used in the 2008 to 2010 period.
When each fits
Home equity loan
Known one-time cost. Renovation with a fixed bid, debt consolidation with a specific payoff target. Fixed rate locks the math.
HELOC
Uncertain total cost or staged spending. Ongoing renovation, business working capital, or emergency backup. Variable rate is the cost of flexibility.
Personal loan
No home to pledge, income uncertainty, or an unwillingness to put the house at risk. Faster funding, simpler documentation, higher rate.
Frequently asked
What is the difference between a home equity loan and a HELOC?
A home equity loan is a fixed-rate, fixed-term lump-sum loan against your home equity. Bankrate's April 2026 weekly survey puts the national average at 7.91%. A HELOC is a revolving line of credit against home equity, typically with a variable rate tied to Prime (HELOC average 7.09% per Bankrate April 2026). The home equity loan fits a known one-time cost; the HELOC fits an ongoing or uncertain cost where you want to draw in stages.
When is home equity loan interest tax-deductible?
Under IRS Publication 936 rules updated after the Tax Cuts and Jobs Act, home equity loan and HELOC interest is deductible only when the proceeds are used to buy, build, or substantially improve the home that secures the loan. Using a HELOC for debt consolidation, tuition, or a vacation does not qualify. Using it to add a room or renovate a kitchen generally does. You must itemise deductions to capture the benefit; standard-deduction filers do not.
How much can I borrow with a home equity loan?
Most lenders cap combined loan-to-value (CLTV) at 85%: first mortgage balance + new home equity loan must stay under 85% of the home's appraised value. Example: home worth $450,000, first mortgage balance $250,000, 85% CLTV cap. Maximum new loan = ($450K × 0.85) - $250K = $132,500. Some lenders go to 90% CLTV for well-qualified borrowers; credit-union products sometimes go higher.
What happens if I default on a home equity loan?
Home equity loan and HELOC default can lead to foreclosure, just like first-mortgage default. The home equity lender sits in second position behind the first mortgage; in a foreclosure sale the first mortgage is paid first and the second-lien holder gets what remains. Under CFPB Regulation X rules, the mortgage servicer must make good-faith contact attempts by day 36 and cannot generally file for foreclosure until the borrower is more than 120 days delinquent. Deficiency balance treatment varies by state.
Which is better for debt consolidation: home equity loan or personal loan?
Pure math favours the home equity loan: consolidating $40,000 of card debt from a 22.8% card rate (Fed G.19 Q4 2025) into a 7.91% home equity loan saves meaningful interest. The counter-consideration is risk: you have moved unsecured card debt (dischargeable in Chapter 7 bankruptcy) onto your home (cannot be cleanly discharged without losing the house). Stable income and confidence that you will not run the cards back up are prerequisites.
Can I get a home equity loan with bad credit?
Home equity and HELOC underwriting is typically more forgiving of credit than unsecured personal loans because the collateral absorbs most of the risk. Many lenders will approve home equity products down to a 620 to 640 FICO, though the rate rises with the score and maximum LTV falls. Payment history on your first mortgage is looked at closely; any recent mortgage delinquency is usually disqualifying regardless of score.
Debt consolidation
Full cost comparison for $25K in card debt, all routes.
Default risks
What happens if you stop paying a HELOC.
Master rate table
Every loan type with sourced April 2026 benchmarks.