Home equity loan vs home equity line of credit

Published September 20, 2024

Updated September 22, 2025

Better
by Better

Best rates for home equity loans

Table of contents:

Home equity loans, often referred to as HELs, are a popular method for homeowners to leverage the equity they've built in their homes. Whether you're looking to finance a renovation project, consolidate debt, or cover a major expense, a home equity loan can provide the funds you need. But how do you qualify for one, and what are the best rates for a home equity loan? Let's explore.

Home equity loan vs home equity line of credit (HELOC)

Before we dive into the specifics of home equity loans, it's important to understand the difference between a Home Equity Loan (HEL) and a Home Equity Line of Credit (HELOC). Both are ways to tap into the equity of your home, but they function differently.

Home equity loan (HEL)

A Home equity loan, or HEL, is a type of loan that allows you to borrow a fixed sum of money against the equity in your home. The loan amount is disbursed in one lump sum, and you repay the loan over a fixed term (typically 15, 20, or 30 years) at a fixed interest rate. This makes HELs a good option for one-time large expenses or projects requiring a fixed lump sum.

Home equity line of credit (HELOC)

On the other hand, a home equity line of credit, or HELOC, is a revolving line of credit that you can draw from as needed during a certain period, known as the draw period. The interest rate on a HELOC is adjustable, and you only pay interest on the amount you've borrowed. This makes HELOCs a more flexible option for ongoing borrowing needs.

HELOC v. HELOAN

Qualifications for home equity loans

Qualifying for a home equity loan requires meeting certain criteria. Here are the typical qualifications:


  • Equity in your home: You need to have a certain amount of equity in your home, typically at least 15-20%.

    With Better, you can borrow up to 90% of your home’s equity, giving you more flexibility than traditional lenders that require you to keep 15–20% untouched.

  • Stable income: Lenders will want to see that you have a stable income that's sufficient to cover the loan payments.

  • Good credit score: A good credit score is typically required. At Better Mortgage, the minimum credit score for a home equity loan is 680.

  • Debt-to-income ratio: Lenders will also look at your debt-to-income ratio (DTI). This is the percentage of your monthly gross income that goes towards paying debts.

    Best rates for home equity loans


    The interest rate you'll get on a home equity loan can vary based on several factors, including your credit score, loan amount, and the lender you choose. To get the best rates for a home equity loan, you'll want to:

  • Maintain a good credit score: The higher your credit score, the lower your interest rate is likely to be.

  • Shop around: Rates can vary between lenders, so it's a good idea to get quotes from multiple lenders to ensure you're getting the best rate.

  • Consider a shorter loan term: While a longer term will result in lower monthly payments, it will also result in a higher overall cost due to more interest payments. If you can afford higher monthly payments, a shorter loan term could save you money in the long run.

    Remember, the best home equity loan for you depends on your individual circumstances and goals. It's always a good idea to talk to a loan consultant to understand your options and find the best solution for your needs.

    More Resources

    Home Refinance vs Home Equity Loan: Which Is Right for You?
    Everything you need to know about HELOC loans

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