If you’ve been researching ways to tap into the equity in your home, you’ve likely come across two main options: a Home Equity Loan and a Home Equity Line of Credit (HELOC). While both use your home’s equity as collateral, the way they work—and how they fit into your financial situation—are completely different.
In this blog, we’ll break down the key differences between the two, explain when each makes the most sense, and help you decide which one might be right for you. No fluff. No jargon. Just facts you can actually use.
First, What Is Equity?
Before you apply for a home equity loan or line of credit, you need to understand what home equity is. Put simply, it’s the value of your home minus what you still owe on your mortgage.
For example, if your home is worth $600,000 and you owe $400,000, you have $200,000 in equity. That equity can be borrowed against, depending on your lender’s criteria.
What Is a Home Equity Loan?
A Home Equity Loan (sometimes called a “second mortgage”) allows you to borrow a fixed amount of money, all at once. This loan has a fixed interest rate, fixed payment schedule, and a set term—usually between 5 and 15 years.
Key Features:
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One-time lump sum
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Fixed monthly payments
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Ideal for major expenses like renovations or debt consolidation
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Your rate and payment never change
Think of it like getting a traditional loan, secured by the value of your home.
What Is a HELOC?
A Home Equity Line of Credit (HELOC) gives you access to a revolving line of credit. You can borrow, repay, and borrow again during what’s called the “draw period,” typically 5 to 10 years.
Unlike a home equity loan, a HELOC usually has a variable interest rate and fluctuating payments based on how much you borrow and the current rate.
Key Features:
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Access money as needed
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Variable rates and payment amounts
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Good for unpredictable expenses like tuition, medical bills, or ongoing projects
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Interest-only payments during the draw period (in some cases)
Think of it like a credit card that’s backed by your house.
Which One’s Right for You?
Here’s where it gets practical. Let’s compare them side-by-side based on real-world use.
| Feature | Home Equity Loan | HELOC |
|---|---|---|
| Payout | Lump sum | Access as needed |
| Interest Rate | Fixed | Variable |
| Best for | One-time costs (renovations, debt, etc.) | Ongoing or uncertain expenses |
| Repayment | Fixed monthly payments | Interest-only, then repayment phase |
| Predictability | High (you know what you owe) | Low to medium (can fluctuate) |
Real-Life Example: Meet Sara and Jason
Sara wants to renovate her outdated kitchen. She knows the cost upfront: $45,000. She doesn’t want to worry about fluctuating payments, and she doesn’t need more funds in the future.
For Sara, a home equity loan makes sense.
Jason is a freelance contractor who needs extra cash to handle unexpected expenses, like replacing tools, paying off tax bills, and covering slow business months. He doesn’t want to take out one big loan—just access funds when needed.
For Jason, a HELOC is the better choice.
What Should You Consider Before Applying?
Whether you choose a HELOC or apply for a home equity loan, ask yourself the following:
1. Do you need all the money at once?
If yes, go with a home equity loan. If no, consider a HELOC.
2. Is a predictable payment important?
If budgeting is a concern, the fixed rate of a home equity loan might offer more peace of mind.
3. Can you handle rate changes?
If rates rise, your HELOC payments could rise too. Not ideal for someone who prefers financial certainty.
The Application Process
At Calgary Equity Loans, we keep things simple.
Unlike traditional banks, we don’t ask for:
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Income verification
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Pay stubs
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Employment letters
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Credit checks (in most cases)
We lend based on the equity in your home—not your job or your credit score.
That means:
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Faster approvals
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Fewer documents
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More flexibility for self-employed or credit-challenged homeowners
Whether you’re looking to renovate, consolidate, or cover an unexpected emergency, we’re here to help you tap into your home’s value without jumping through hoops.
Which Costs Less?
This one’s tricky.
Home equity loans usually have higher interest rates than HELOCs—at least initially. But because they’re fixed, you’re protected if rates rise.
HELOCs often start with lower rates, but because they’re variable, your payments could spike over time.
Always factor in:
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Interest rate type
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Loan term
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Total repayment amount
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Potential for rate changes
The Final Word
If you want predictability, a lump sum, and a clear path to repayment—a home equity loan is likely your best bet.
If you want flexibility, ongoing access to funds, and don’t mind rate changes—a HELOC might work better for your needs.
Whatever you choose, just remember: your home is on the line. Make sure the product fits your financial situation, your budget, and your future goals.
And if you’re unsure? That’s what we’re here for.
