American homeowners are sitting on roughly $34.5 trillion in home equity in mid-2026, about $302,000 per homeowner on average. Two products let you borrow against it without touching your first mortgage: the home equity loan and the home equity line of credit, or HELOC. They are cousins, not twins. Both are secured by your house, and both can end in foreclosure if you stop paying. But they hand you the money differently, charge for it differently, and suit different kinds of expenses. Picking the wrong one is the most common mistake people make with home equity, and it is avoidable.
Home equity loan: one check, one fixed payment
A home equity loan is an installment loan. You borrow a set amount, receive it as a lump sum at closing, and repay it in equal monthly payments over a term written into the contract; terms vary by lender, so ask what is offered rather than assuming. The rate is normally fixed too, so the payment you sign for is the payment you make until the balance is gone. That predictability is the product’s whole appeal. You know the cost on day one, the payment cannot move if market rates rise, and there is no temptation to keep borrowing because there is nothing left to draw. The flip side is rigidity: if the project runs over, you cannot simply take more. You would apply again, with a new closing.
HELOC: a line you draw on as you go
A HELOC is revolving credit secured by your home; it works much like a credit card with a far lower rate. The lender approves a maximum line. During the draw period you borrow what you need, when you need it, and interest accrues only on the amount outstanding; pay some back and it is available again. When the draw period ends, the repayment period begins and the balance amortizes over the remaining term, so the payment typically steps up. HELOC rates are usually variable, tied to a market index, so your cost moves with the market. They averaged about 7.25% in mid-2026 after a January drop of 0.78 of a point to a three-year low. That is the trade: flexibility and a lower starting cost in exchange for a payment that can change, and that usually rises when the draw period ends and principal comes due.
Match the loan to the expense
- One-time, known cost: home equity loan. A roof with a signed bid, a debt consolidation where you know the payoff figures to the dollar, a medical bill. You borrow exactly that amount, lock the rate, and the debt has an end date.
- Open-ended or staged cost: HELOC. A kitchen remodel that will be invoiced over months, a renovation whose final tally nobody can promise, or a reserve you want available but hope not to use. Drawing only what each invoice requires means you pay interest on far less than the full line. Our renovation-financing guide compares the ways to pay for a project in more detail.
- Debt consolidation deserves a caution. The average credit card carrying a balance charged 22.15% in the second quarter of 2026, so moving that balance to a HELOC near 7.25% or a fixed home equity loan cuts the interest sharply. But you are converting unsecured debt into debt secured by your house. If the cards get run back up, you have the old balances plus a lien. Consolidate only with a plan that closes the loop.
How much a lender will let you borrow
Both products are second liens behind your first mortgage, and lenders size them off your combined loan-to-value ratio: your existing mortgage balance plus the new loan or line, divided by the home’s appraised value. In 2026 that combined figure is generally capped at 80% to 85%. On a home worth $429,300, the mid-2026 median, an 80% cap allows total mortgage debt of $343,440 and an 85% cap allows $364,905; subtract what you still owe on the first mortgage and the remainder is the most you could borrow. You also qualify on income and credit, as with any mortgage, and the lender will want a valuation of the home. Our 2026 guide to HELOCs and home equity covers current pricing and the qualification process.
The tax deduction is narrower than it used to be
The 2013 version of this article said interest on either product was possibly deductible. The rule now is specific, and the 2025 tax law made it permanent: interest on a home equity loan or HELOC is deductible only when the money is used to buy, build or substantially improve the home that secures it, only within a $750,000 cap on combined home-acquisition debt, and only if you itemize. Use the money for a wedding, a car, tuition or credit card payoff and the interest is not deductible at all. Even a qualifying renovation rarely produces a real tax benefit, because the 2026 standard deduction is $16,100 for single filers and $32,200 for joint filers, and only about 9% of returns itemized in tax year 2023, per IRS data compiled by the Congressional Research Service. Treat any deduction as a bonus, not a reason to borrow.
What about a cash-out refinance instead?
A third route is to refinance the whole first mortgage for a larger amount and pocket the difference. In 2026 that is usually the wrong move for anyone whose existing mortgage carries a rate below today’s mid-6s: you would be repricing your entire balance upward to get at a slice of equity, and paying closing costs of typically 2% to 5% of the new loan to do it. A second-lien product leaves the cheap first mortgage alone. The refinancing guide walks through when a refinance beats a home equity loan or HELOC and when it does not.
It is still your home on the line
Everything above is mechanics. The thing the old headline got right is the warning. A home equity loan and a HELOC are both mortgages: miss the payments and the lender can foreclose, exactly as your first-mortgage lender could. That is why these products carry rates far below credit cards and personal loans (three-year personal loans averaged about 13.4% in 2026), and it is why they deserve more caution than the rate alone suggests. Before you sign, know which product matches the expense, how the payment can change over time, what the combined loan-to-value leaves you as a cushion, and what happens to the payment if a variable rate rises. Know what you are getting into.