Home Equity Loans vs. HELOC: Which is Better?
Updated: 3 days ago
If you've owned your home for a while, your equity can help pay for a renovation, a rental turnover or other big costs. The two main ways to borrow against it work very differently. As a military spouse for more than 30 years and an Arlington Associate Broker with 560+ transactions, I've seen both used well and used badly.
This article is general information, not tax, legal or financial advice.
Home equity loan
You borrow one lump sum and repay it over a set term, usually at a fixed rate.
Good for: one large, known cost, like a roof or a kitchen.
Pros: a predictable payment.
Cons: you pay interest on the full amount from day one, and there are often closing costs.
HELOC
A home equity line of credit works like a credit card secured by your home. You draw what you need during a draw period, often paying interest only, then repay principal and interest afterward. Most HELOCs have variable rates.
Good for: ongoing or uncertain costs, like a phased renovation.
Pros: you only pay interest on what you use.
Cons: the payment can rise with rates, and it can jump when the draw period ends.
The tax rule many people miss
Interest on a home equity loan or HELOC is deductible only if the money is used to buy, build or substantially improve the home that secures the loan, and only if you itemize. Interest on money used for a car, tuition or credit card debt isn't deductible. Keep records of how you spend the money.
Military considerations
Your home is the collateral. If you can't pay, you could lose it.
Plan for PCS. If you sell, the loan or line must be paid off at closing. If you rent the home out, make sure the rent covers both the mortgage and the equity payment.
Rates matter. Mortgage rates averaged 7.28% on October 1, 2026, and home equity rates are usually higher than first-mortgage rates. Compare offers from at least two lenders, and read the terms for rate caps, fees and the draw period.
Consider alternatives. For a smaller project, savings or a renovation loan may cost less.
In Northern Virginia
Many Northern Virginia owners have built equity over the last several years. If you're planning a project before a PCS, my value projects guide shows which updates tend to pay back. I'm glad to give you a current value estimate before you apply.
Sources: IRS Publication 936; Freddie Mac, October 1, 2026.
Last reviewed: October 2026
Comments