HELOC vs Home Equity Loan Cost Calculator
What This Calculator Does and Why It Matters
Both a HELOC and a home equity loan let you borrow against your home’s equity, but their cost structures are very different. A home equity loan gives you a lump sum at a fixed rate. A HELOC is a revolving line of credit with a variable rate and a draw period followed by a repayment period. Choosing the wrong one can cost you thousands of dollars more than necessary.
This free HELOC vs home equity loan cost calculator puts both options side by side. You enter the loan terms, interest rates, and fees for each product, and the calculator tells you which one costs less in total — and by how much. According to Investopedia’s HELOC guide, the right choice depends heavily on how you plan to use the funds and your tolerance for rate variability.
How to Use This Calculator
Step-by-Step Instructions
- Under the HELOC column, enter the credit limit, draw period length, repayment period length, interest rates for each period, how much you actually plan to draw, and any annual or closing fees.
- Under the Home Equity Loan column, enter the loan amount, loan term in years, fixed interest rate, and closing costs.
- Click Compare Costs to see a side-by-side breakdown of monthly payments, total interest, fees, and total cost of borrowing for both options.
- The result banner at the top of the results tells you which option costs less and by how much.
The Formula Explained
Breaking Down the Formula
For the HELOC, total cost is calculated in two phases. During the draw period, you pay interest only on the amount drawn, using the monthly rate times the balance. During the repayment period, the remaining balance is amortized using the standard loan payment formula. Total HELOC interest is the sum of draw-period interest and repayment-period interest, plus all fees.
For the home equity loan, the standard amortization formula is used from day one. Monthly payment equals the loan amount multiplied by the monthly rate times (1 plus monthly rate) to the power of n, divided by that same expression minus 1. Total cost is total interest plus closing costs.
Example Calculation with Real Numbers
You need $60,000 for a home renovation. A HELOC offers a variable rate currently at 8.5% for a 10-year draw period and 20-year repayment, with $300 in annual fees. You plan to draw $50,000. A home equity loan offers a 7.9% fixed rate for 15 years with $2,000 in closing costs.
The HELOC interest-only payment during draw is about $354 per month. After draw, the repayment payment jumps to roughly $434. Total interest plus fees on the HELOC is approximately $67,000. The home equity loan comes to $566 per month with total interest plus closing costs of about $63,700. In this case, the home equity loan is cheaper by around $3,300 despite higher upfront closing costs.
When Would You Use This
Real Life Use Cases
This comparison is most useful when you are planning a large one-time expense like a home renovation or debt consolidation, and you are undecided between a lump sum and a flexible credit line. If you have already taken out a HELOC and are approaching the end of the draw period, our HELOC payment calculator after draw period can help you plan for the repayment transition. If you are also considering a cash-out refinance, check our mortgage points vs down payment calculator to weigh refinancing costs.
Specific Example Scenario
A homeowner wants $40,000 to add a garage. They are choosing between a home equity loan at 7.5% for 10 years and a HELOC at 8.75% with a 5-year draw and 15-year repayment. They know they need the full $40,000 upfront and will not draw incrementally. The calculator shows the home equity loan saves them over $5,000 in total interest because variable rates on the HELOC trend higher over the life of the loan.
Tips for Getting Accurate Results
Use Your Current HELOC Rate, Not the Introductory Rate
Many HELOCs advertise a low introductory rate for the first 6 or 12 months, after which the rate adjusts to the prime rate plus a margin. Always enter the ongoing variable rate — not the teaser rate — to get an accurate cost comparison. You can check the Federal Reserve’s current prime rate data and add your lender’s margin to estimate your ongoing rate.
Include All Fees, Not Just the Interest Rate
Home equity loans often have closing costs of 2% to 5% of the loan amount. HELOCs may have annual fees, inactivity fees, or early closure fees. These can flip the comparison result. Always enter all known fees for both products before making a decision. Even a $1,500 difference in fees can change which product is cheaper over a 15-year term.
Think About How You Will Actually Use the Funds
If you will draw the full amount on day one and never touch the line again, a home equity loan almost always wins on cost. If you need to draw in stages over 2 to 3 years — for example, funding a multi-phase renovation — a HELOC may actually cost less because you only pay interest on what you have drawn. Our kitchen remodel ROI calculator can help you size the loan to the actual project cost.
Frequently Asked Questions
What is the main difference between a HELOC and a home equity loan?
A home equity loan gives you a fixed lump sum at a fixed interest rate, repaid over a set term. A HELOC is a revolving credit line with a variable rate — you draw what you need during the draw period and repay during the repayment period. The HELOC offers more flexibility but carries rate risk.
Is a HELOC always cheaper than a home equity loan?
Not necessarily. It depends on how much you draw, for how long, and how interest rates move over the life of the loan. If rates rise significantly during your HELOC draw period, the total interest cost could easily exceed that of a fixed-rate home equity loan.
Which is better for home renovations — a HELOC or a home equity loan?
For a single large renovation where the full cost is known upfront, a home equity loan provides certainty. For multi-phase projects where you draw funds over time, a HELOC may be more cost-efficient since you only pay interest on what you have actually drawn.
Do both a HELOC and a home equity loan require home equity?
Yes. Both products use your home as collateral and require you to have sufficient equity. Most lenders allow you to borrow up to 80% to 85% of your home’s appraised value, minus your existing mortgage balance. This is known as your combined loan-to-value (CLTV) ratio.
Are interest rates on HELOCs always higher than home equity loans?
Not always, but HELOC rates are variable and tied to the prime rate, which can rise. Home equity loans offer a fixed rate that is locked in at closing. At the time of origination, HELOC rates may be lower, but over a 10 to 20-year term, rising rates can make the HELOC more expensive in the long run.
What happens if I only use part of my HELOC credit limit?
You only pay interest on the amount you have actually drawn, not the full credit limit. This is one of the key advantages of a HELOC over a home equity loan — if you end up needing less money than expected, your total cost is lower. However, some lenders charge annual fees regardless of usage.
Can I convert a HELOC to a fixed-rate loan?
Some lenders allow you to convert all or part of your HELOC balance to a fixed-rate option, either during the draw period or at the start of the repayment period. This can help you lock in a rate if you are concerned about rising variable rates. Ask your lender if this option is available on your specific HELOC product.
Are closing costs on a home equity loan tax deductible?
Closing costs on home equity loans are generally not directly deductible. However, points paid on a home equity loan used to improve your primary residence may be deductible over the loan’s life. The interest itself may be deductible if the funds were used for home improvements. Consult a tax advisor for your specific situation.
Conclusion
Choosing between a HELOC and a home equity loan is not just about the interest rate — it is about understanding the total cost over the full loan term. This free calculator gives you a clear, honest comparison of both options so you can make the right choice for your situation.
As a general rule, if you need certainty and plan to use the full amount, a home equity loan wins. If you need flexibility and can manage rate risk, a HELOC may serve you better.