Should I get a home equity loan or HELOC?

The choice between a home equity loan and a HELOC depends on your specific financial needs and risk tolerance. Choose a **home equity loan** if you need a specific amount of money upfront for a single, large expense, and you prefer predictable, fixed monthly payments. Opt for a **HELOC** if you need flexible access to funds over time, for ongoing projects or as an emergency reserve, and you are comfortable with a variable interest rate and fluctuating payments.

Is HELOC interest tax deductible in 2026?

Yes, HELOC interest can be tax-deductible in 2026, but **only if the funds are used to buy, build, or substantially improve the home that secures the HELOC**. If the funds are used for other purposes, such as debt consolidation, education, or personal expenses, the interest is not tax-deductible. Always keep detailed records of how the funds were used and consult a tax professional.

What credit score do I need for a HELOC?

Most lenders require a minimum credit score of **620 or higher** to qualify for a HELOC. However, to secure the most favorable interest rates and terms, a credit score in the mid-700s or above is generally recommended. Lenders also consider other factors like your debt-to-income ratio and the amount of equity you have in your home.

Can I use home equity to pay off credit card debt?

Yes, you can use home equity to pay off credit card debt by taking out either a home equity loan or a HELOC. This is a common strategy for debt consolidation because home equity products typically offer **lower interest rates** than credit cards. However, remember that the interest on these loans will **not be tax-deductible** if used for credit card debt, as it's not considered a home improvement expense. Also, you are securing the debt with your home, so defaulting could lead to foreclosure.

What are the closing costs for home equity loans and HELOCs?

Closing costs for home equity loans and HELOCs can range from **2% to 5% of the loan amount**, similar to a first mortgage. These costs can include appraisal fees, origination fees, title search fees, and attorney fees. Some lenders offer "no-closing-cost" options, but these often come with a slightly higher interest rate or other fees built into the loan. It's important to ask for a detailed breakdown of all fees before signing any agreements.

Can I get a home equity loan if I still have a mortgage?

Yes, home equity loans and HELOCs are specifically designed for homeowners who still have an existing mortgage. They are considered **second mortgages** because they are junior to your primary mortgage. Lenders will calculate your combined loan-to-value (CLTV) ratio to ensure that the total amount of debt secured by your home (your first mortgage plus the new home equity product) does not exceed their maximum allowable percentage, typically 80% to 85% of your home's value.

What happens to my HELOC after the draw period ends?

After the draw period (typically 10 years) ends, your HELOC transitions into the **repayment period** (usually 10-20 years). During this phase, you can no longer borrow money. You will begin making principal and interest payments on the outstanding balance, similar to a traditional loan. Since the interest rate is variable, your payments can still fluctuate. It's crucial to be prepared for potentially higher monthly payments once the repayment period begins, especially if you were only making interest-only payments during the draw period.

Home Equity Loan vs. HELOC: Which is Best in 2026? | One…