CNN Underscored reviews financial products based on their overall value. We may receive a commission through our affiliate partners and may earn compensation when a customer clicks on a link, when an application is approved, or when an account is opened, but our reporting is always independent and objective. This may impact how links appear on this site. This site does not include all financial companies or all available financial offers. Terms apply to American Express benefits and offers. Enrollment may be required for select American Express benefits and offers. Visit americanexpress.com to learn more.
American homeowners are sitting on more than $11 trillion in tappable home equity, which equates to an average of $300,000 per borrower, according to a report published in March 2026 by Cotality, a property data and analytics company. That is the highest amount ever recorded, and if you’ve built up enough equity on your own home, you may be able to tap into it through a home equity line of credit (HELOC) or a home equity loan.
Both HELOCs and home equity loans let you borrow against the value you’ve built in your home, although the similarities largely end there. How you access the money and how you repay it are only a couple of the differences that could affect which option makes the most sense for your financial needs.
Whether you choose a HELOC or home equity loan, both use your home as collateral, meaning your home could be at risk of foreclosure if you miss payments. So, make sure the expense you’re using the loan for justifies the risk.
While a HELOC and a home equity loan both let you borrow against your home equity, they differ in how you access the money, repay what you borrow and how interest rates are structured. Here’s a side-by-side comparison of the key features and differences.
|
HELOC |
Home equity loan |
|
|---|---|---|
| What it is |
Revolving line of credit |
Loan |
| Interest rate |
Typically variable |
Fixed |
| Monthly payments |
Interest-only payments required during the draw period; principal and interest required after the draw period ends |
Fixed |
| How you access funds |
Over time, as needed |
One lump sum |
| Who it’s best for |
Borrowers who want flexible, ongoing access to funds |
Borrowers who need a sizable amount of cash for a major, one-time expense |
| Average application process timeline |
2 to 6 weeks |
2 weeks to 2 months |
A home equity line of credit (HELOC) is a type of second mortgage that lets you borrow against your home’s equity through a revolving line of credit. You can withdraw funds as needed, up to your approved credit limit. As you repay your outstanding balances, your available credit amount rises, similar to a credit card.
Because HELOCs generally have variable rates, both your interest rate and monthly payment can fluctuate over time as market rates change.
A HELOC typically has two phases: a draw period and a repayment period. During the draw period, which often lasts 10 years, you can borrow, repay and borrow again as needed. During this time, lenders typically only require you to pay interest on the amount you’ve used.
For example, if you’re approved for a $60,000 credit line to renovate your bathroom but end up spending just $35,000, you’ll generally pay interest only on the $35,000 you borrowed.
You can continue accessing your remaining available credit until the draw period ends. After that, the repayment period begins, which typically lasts 20 years. During this phase, you’ll repay both principal and interest, and you can no longer draw additional funds from your credit line.
You can use a HELOC for nearly any type of expense. However, if you’re hoping to claim a tax deduction on the interest, you’ll need to use the funds for qualifying home improvements, repairs or renovations.
Some common ways homeowners use a HELOC include the following:
-
Education costs
-
Debt consolidation
-
Ongoing expenses like childcare or elder care
-
Emergency funds
-
Boosting cash flow during retirement
-
Flexible access to cash so you can borrow what you need, when you need it, up to your credit limit
-
Only pay interest on the amount you draw
-
Rates may start lower than other borrowing options and could decrease if market rates fall
-
Some lenders offer fixed-rate options
-
Interest may be tax deductible
-
Variable interest rates mean your payment can increase if rates rise
-
Your home is used as collateral, so you risk foreclosure if you miss payments
-
Payments can spike after the draw period ends, when you begin paying principal as well as interest
-
Lenders can freeze or reduce your credit line in certain situations
-
Some HELOCs charge annual fees
Like a HELOC, a home equity loan lets you tap your home’s equity to access cash, but the two products work differently. For one, a home equity loan — also called a “second mortgage” — provides you with a single lump-sum payout upfront rather than flexible access to funds over time. So, it’s important with this loan that you borrow only what you need to ensure you don’t take on unnecessary debt.
Another key distinction is that home equity loans typically carry fixed interest rates, which means your monthly payments remain consistent and predictable throughout the life of the loan. Also, unlike a HELOC, you’ll repay both principal and interest each month over the full loan term.
These differences aside, both HELOCs and home equity loans can offer valuable tax advantages. If you use the funds to buy, build or substantially improve a home, you may be eligible to deduct the interest paid on the loan from your taxes, subject to IRS rules and eligibility requirements.
Like a HELOC, you can use a home equity loan for almost any major expense. Home improvements are a common use because they can increase your home’s value and may come with tax advantages.
Some examples of how homeowners use home equity loans include the following:
-
Major home renovation projects
-
Debt consolidation
-
Unexpected expenses, such as emergency medical bills or major vehicle repairs
-
Tuition or student loans
-
Down payment on a second home
-
Funding a new business
-
Life events, such as a wedding or funeral
-
Fixed interest rate provides repayment predictability
-
Offers more attractive interest rates than unsecured loans like credit cards or personal loans
-
Using the funds for a home renovation could boost your property value
-
Can help save you money if used to consolidate debt
-
Interest may be tax deductible
-
Reduces your home equity
-
Typically comes with closing costs
-
Requires you to take on substantial debt
-
Puts your home at risk of foreclosure if you default on your loan
-
Fixed interest rate means you could miss out on savings if rates fall
While the economic forces that influence HELOC and home equity loan rates are largely outside your control, the good news is there are steps you can take to improve your chances of qualifying for a lower rate and optimal terms.
“Homeowners who have built substantial equity in their home are likely to receive a more attractive rate than a homeowner with minimal equity,” Wendy Morrell, head of relationship retail and home equity strategist at U.S. Bank, said. However, she also noted that lenders look at more than just equity when setting rates. “[F]or example, credit score and history can also impact the interest rate,” she said. “In the months leading up to an application, the goal is to show consistency and reduce risk in your financial profile.”
To strengthen your credit profile — and potentially qualify for a more competitive rate — you’ll also want to make sure to avoid opening new credit card accounts or spending on large purchases or a luxury vacation in the months before applying. Instead, focus on paying down existing debt and demonstrating responsible credit use.
Eligibility for a HELOC or home equity loan varies by lender and depends on factors such as your financial profile and available home equity as well as the size and terms of your loan.
Still, most lenders look for the same core qualifications. Since you’ll be asked to provide a range of financial and personal information, it’s a good idea to gather key documents ahead of time. You’ll also want to get your finances in the strongest shape possible, since a healthier credit profile can improve both your approval odds and the rates and terms you’re offered.
Here’s a look at the qualifications and documentation HELOC and home equity loan lenders typically require:
-
Credit score minimum: Most lenders require a credit score of at least 620. If you have a score near the minimum, you may still qualify if you have strong compensating factors, such as a solid income, low debt levels or substantial home equity.
-
Strong repayment history: When lenders review your credit report they want to see a track record of responsible credit management, including on-time payments and consistent debt repayment.
-
Financial stability: Be prepared to provide financial records such as bank statements, investment account statements and retirement or pension account information.
-
Debt-to-income (DTI) ratio: Your DTI ratio compares your monthly debt obligations to your gross monthly income. Most lenders prefer a DTI of 43% or lower, which tells them that you have enough income to comfortably manage loan payments.
-
Home equity minimum: Many lenders require you to have at least 20% equity in your home, although some may accept as little as 15% equity.
-
Proof of employment: Lenders typically ask for two years of W-2s, tax returns and recent pay stubs to verify your employment stability and income. If you’re self-employed, you may qualify but expect to face additional documentation requirements.
-
Homeowners insurance: Because your home serves as collateral, lenders require proof of adequate homeowners insurance coverage to protect the property.
-
Mortgage statement: Your current mortgage statement helps lenders verify your outstanding loan balance, available home equity and other key information.
-
Home appraisal: An appraisal determines your home’s current market value and helps calculate your loan-to-value (LTV) ratio, the percentage of your home’s value that is being borrowed against. Lenders use the LTV ratio to assess risk, and generally, a lower LTV indicates less risk. Most lenders prefer an LTV of 80% or below.
If you decide a HELOC or home equity loan isn’t the right fit, there are other options you can explore.
A cash-out refinance replaces your current mortgage with a larger one, allowing you to convert a portion of your home equity into cash. For example, if your home is worth $500,000 and you owe $75,000 on your mortgage, you’ve built up $425,000 in equity. If your lender allows borrowing up to 80% of your home’s value (a common home lending threshold), you could refinance into a new $400,000 loan and receive roughly $325,000 in cash after paying off your remaining mortgage balance, before closing costs and fees.
Personal loans generally come with higher interest rates than home equity products, especially if you don’t have stellar credit. The upside? Because they’re unsecured, your home isn’t on the line if you fall behind on payments. You may also find it easier to qualify for a personal loan, and you typically won’t need a home appraisal or be required to pay any closing costs. Plus, most personal loans come with fixed interest rates, giving you predictable monthly payments throughout the repayment term.
Need cash but don’t have enough home equity? Or maybe you don’t want to borrow against your home. A credit card offering a 0% introductory rate could be a good option if you need extra money to cover smaller expenses. You’ll get your money quickly and pay no interest during the introductory period. However, the interest rate could then rise sharply, so be sure you understand clearly when the introductory period expires and have a plan to repay your balance by then.
How we evaluate mortgage lenders and rates
According to CNN Underscored’s mortgages and loans methodology, we evaluate mortgage lenders based on a 100-point scoring system. Based on their internal scoring results in each category, lenders rank in one of our weighted lender tiers.
-
Exceptional: 95 and above
-
Highly recommended: 86 to 94
-
Recommended: 80 to 85
-
Limited appeal: 75 to 79
-
Proceed with caution: 74 and below
Sure, a low interest rate is important, but the lowest advertised rates are typically reserved for borrowers with the strongest financial profiles. That’s why we dig into not only how competitive lenders rates appear on the surface, but also how accessible their loan products are for a broad range of borrowers.
We consider how accessible lenders are through their customer support channels, the quality of the digital experience they offer and how quickly a borrower can expect to typically close on a loan. We also evaluate whether lenders provide reasonably attainable rate or fee discounts that can help reduce borrower costs.
While both HELOCs and home equity loans let you tap your home’s equity for cash, they work differently. A HELOC is a revolving line of credit, similar to a credit card, that allows you to borrow as needed up to a set limit during the draw period, which typically lasts 10 years. During that period, you’ll generally only pay interest on the funds you borrow. Once the repayment period begins — usually 20 years — you can no longer access funds and must repay both principal and interest.
By contrast, a home equity loan provides a lump sum up front, and you’ll repay principal and interest in fixed installments over the full term. Since HELOCs often come with variable rates, monthly payments can fluctuate as interest rates change.
The stronger your financial profile, the more likely you are to qualify for a better, lower rate. To improve your chances, focus on boosting your credit score by paying bills on time and reducing outstanding balances. Keeping your debt-to-income (DTI) ratio below 43% can also help. Be sure to shop around and compare offers from multiple lenders as well and consider a shorter loan term, which often comes with lower rates and less interest paid over time. If you can wait and build more home equity before borrowing, that may further improve your odds of securing a more competitive rate.
The lowest credit score that may allow you to qualify for a HELOC or home equity loan is around 620, particularly if you have a strong, stable income and substantial home equity. However, many lenders prefer a score of at least 660, and some may require 720 or higher. At the end of the day, you want a higher score not just to improve your odds of qualifying but also to help you secure a lower interest rate.
For this article, we consulted the following expert to gain their professional insights:
-
Wendy Morrell, head of relationship retail and home equity strategist at U.S. Bank
CNN Underscored’s Money team is guided by a transparent methodology, independent editorial judgment and a commitment to helping readers understand which home loan products genuinely deserve their consideration. Our mortgage rate and lending coverage is grounded in analysis of mortgage rate trends, lender offerings and borrower priorities, with the goal of helping readers navigate an often complex borrowing landscape with clear, practical guidance.
For this article, CNN Underscored money writer Robin Rothstein drew on more than five years of experience covering home lending and the economic factors that influence mortgage rates and the housing market. Her close tracking of rate trends and market developments helped inform clear, accurate guidance for homeowners seeking the best ways to tap their home equity and improve their chances of securing a lower interest rate.
