On September 16, 2026, the Federal Reserve raised its benchmark rate a quarter point, to 3.75%–4.00%, and the banks moved the prime rate from 6.75% to 7.00% the next morning. Two products that let you borrow against your house reacted very differently. A home-equity line of credit (HELOC) is priced off prime, so every existing line got more expensive within a statement or two. A home-equity loan is a fixed-rate second mortgage, so the loans already closed did not move at all — and the new ones are priced off the bond market, not the Fed.
That makes "HELOC or home-equity loan?" a sharper question this autumn than it was in the spring. On the averages published the week of September 25, the HELOC still starts cheaper: 7.09% against 7.42% for a fixed home-equity loan. On $50,000 paid off over 15 years, that is about $1,700 of interest in the HELOC's favour — if the rate never moves. The Fed's own projections say it probably will. This guide prices both on the same $50,000, shows how far rates have to rise before the cheaper start stops being cheaper, and puts a number on the part of a HELOC that surprises most borrowers: the day the draw period ends.
Where rates arePrime at 7.00%, equity products just above it
Fed funds target
- Level
- 3.75%–4.00%
- What moves it
- The Fed, eight meetings a year; next on October 27–28
Prime rate
- Level
- 7.00%
- What moves it
- Top of the Fed range plus 3 points, the day after a decision
HELOC, average variable rate
- Level
- 7.09%
- What moves it
- Prime plus your margin, usually monthly
Home-equity loan, average fixed rate
- Level
- 7.42%
- What moves it
- Set once at closing, then never
30-year fixed mortgage
- Level
- 7.03%
- What moves it
- The 10-year Treasury, not the Fed directly
| Rate | Level | What moves it |
|---|---|---|
| Fed funds target | 3.75%–4.00% | The Fed, eight meetings a year; next on October 27–28 |
| Prime rate | 7.00% | Top of the Fed range plus 3 points, the day after a decision |
| HELOC, average variable rate | 7.09% | Prime plus your margin, usually monthly |
| Home-equity loan, average fixed rate | 7.42% | Set once at closing, then never |
| 30-year fixed mortgage | 7.03% | The 10-year Treasury, not the Fed directly |
Source: CalculatorAI · calculatorai.app · Federal Reserve H.15 (prime, week ending Sept 29); Curinos via Yahoo Finance (HELOC and home-equity loan, Sept 25, 780+ score and CLTV under 70%); Freddie Mac PMMS (30-year fixed, Sept 24)
Two details in that table matter more than the headline numbers. First, the averages are for borrowers with a 780+ credit score who borrow less than 70% of the home's value in total; a 720 score or a combined loan-to-value of 85% will be quoted higher, and the gap between the two products can change shape with it. Second, the HELOC average is only nine hundredths of a point above prime. That is a promotional market — lenders are competing on the margin — and the margin is the one part of a HELOC rate that is fixed for the life of the line. The index under it is not.
The same $50,000, two waysPayment, interest and what each one promises
One lump sum, one payment, forever
You receive $50,000 at closing and repay it on a fixed schedule. Over 15 years that is $461.24 a month and $33,022 of interest; over 10 years, $591.42 a month and $20,971. Nothing the Fed does after closing changes either number. You pay interest on the full amount from day one, whether or not you have spent it.
A credit line that reprices with prime
You draw what you need, when you need it, and pay interest only on what is drawn. Most lines have a 10-year draw period in which the minimum payment is interest only — $295.42 a month on $50,000 at today's rate — followed by a repayment period of up to 20 years. Every quarter-point move in prime changes the payment by $10.42 a month per $50,000.
Comparing those two monthly payments directly is the mistake most HELOC marketing invites. $295 is less than $461 because the HELOC payment is not repaying anything. To compare like with like, the HELOC has to be paid down on the same 15-year schedule as the loan — which you can do voluntarily on almost any line. Done that way, the HELOC payment at 7.09% is $451.93, about $9 a month below the fixed loan, and the interest over 15 years is $31,348 against $33,022. That $1,674 is the whole of the HELOC's advantage today. It exists only as long as the rate does.
When the HELOC stops being cheaperThe break-even is about a third of a point
The question that decides between the two is not which rate is lower this week. It is how much the HELOC rate has to rise, and stay risen, before its cheaper start is used up. Same $50,000, same 15-year paydown, the HELOC payment re-figured each month at the new rate:
falls 1 point after a year and stays
- Highest monthly payment
- $451.93
- HELOC interest
- $26,962
- vs the fixed loan
- $6,061 cheaper
stays at 7.09%
- Highest monthly payment
- $451.93
- HELOC interest
- $31,348
- vs the fixed loan
- $1,674 cheaper
rises 0.25 in October (one more hike) and stays
- Highest monthly payment
- $458.94
- HELOC interest
- $32,602
- vs the fixed loan
- $420 cheaper
rises 1 point after a year and stays
- Highest monthly payment
- $478.88
- HELOC interest
- $35,875
- vs the fixed loan
- $2,853 more
rises 2 points within two years and stays
- Highest monthly payment
- $505.06
- HELOC interest
- $39,959
- vs the fixed loan
- $6,937 more
| If the HELOC rate… | Highest monthly payment | HELOC interest | vs the fixed loan |
|---|---|---|---|
| falls 1 point after a year and stays | $451.93 | $26,962 | $6,061 cheaper |
| stays at 7.09% | $451.93 | $31,348 | $1,674 cheaper |
| rises 0.25 in October (one more hike) and stays | $458.94 | $32,602 | $420 cheaper |
| rises 1 point after a year and stays | $478.88 | $35,875 | $2,853 more |
| rises 2 points within two years and stays | $505.06 | $39,959 | $6,937 more |
Source: CalculatorAI · calculatorai.app · drafts/heloc-vs-home-equity-loan-numbers.mjs
The break-even is a permanent rise of about 0.37 points after the first year — call it one and a half quarter-point hikes that are never reversed. One more hike, which sixteen of the Fed's eighteen officials projected for 2026, leaves the HELOC barely ahead. Two, and the fixed loan wins.
That cuts both ways, which is the honest conclusion. The downside of the HELOC in this table is bounded and modest — a 2-point rise costs about $44 a month more at the peak than the fixed loan and $6,937 over 15 years. The upside if rates fall back is of the same order. Choosing a fixed loan now is buying insurance against more hikes; choosing a HELOC is betting, mildly, that the hiking stops soon. Neither is reckless at these spreads. What is reckless is treating the HELOC as if its rate were fixed.
The end of the draw periodWhere HELOC payments jump
Paying a HELOC down on a schedule is a choice. The contract does not require it for the first ten years, and most borrowers pay what the statement asks for. That is how a HELOC is still a full $50,000 a decade later — and why the switch from interest-only to repayment is the moment HELOC borrowers remember.
6.09%
- Years 1–10
- $253.75
- Years 11–30
- $360.82
- Jump
- +42%
- Total interest
- $67,046
7.09% (today)
- Years 1–10
- $295.42
- Years 11–30
- $390.36
- Jump
- +32%
- Total interest
- $79,135
8.09%
- Years 1–10
- $337.08
- Years 11–30
- $421.02
- Jump
- +25%
- Total interest
- $91,496
9.09%
- Years 1–10
- $378.75
- Years 11–30
- $452.76
- Jump
- +20%
- Total interest
- $104,113
| HELOC rate | Years 1–10 | Years 11–30 | Jump | Total interest |
|---|---|---|---|---|
| 6.09% | $253.75 | $360.82 | +42% | $67,046 |
| 7.09% (today) | $295.42 | $390.36 | +32% | $79,135 |
| 8.09% | $337.08 | $421.02 | +25% | $91,496 |
| 9.09% | $378.75 | $452.76 | +20% | $104,113 |
Source: CalculatorAI · calculatorai.app · drafts/heloc-vs-home-equity-loan-numbers.mjs
Two numbers in that table are worth reading twice. $79,135 of interest on $50,000 at today's rate, if you pay only the minimum for ten years — more than twice the $33,022 of the fixed 15-year loan, for the same money. And the payment jump, about a third, arrives on a date written in the contract, ten years after you signed, when the reason you borrowed may be long forgotten.
Shorter repayment periods make the jump far larger. A line with a 10-year draw and a 5-year repayment period — the shape the Home Equity Calculator uses by default, with a 15-year total term — goes from $295.42 to $992.18 a month, 3.4 times the draw-period payment. Some lines have no repayment period at all and end in a balloon: the full balance is due when the draw period closes. Find the words "repayment period" and "balloon" in your agreement before you draw the first dollar.
How much you can borrowCombined loan-to-value, and what a price dip does
Lenders cap the total of everything secured by the house — first mortgage plus the new line or loan — as a percentage of its appraised value. That is the combined loan-to-value, CLTV. Take a $450,000 home with $280,000 left on the mortgage:
A $450,000 home with a $280,000 mortgage
Today the mortgage alone is 62.2% of the value. Borrowing $50,000 more takes the combined figure to 73.3% — under every common cap, but above the 70% at which the published averages were quoted, so expect to be offered a little more than 7.09% or 7.42%.
The last two figures are the HELOC risk nobody prices. A HELOC agreement usually lets the lender freeze or reduce the unused part of the line if the home's value falls significantly or your finances change. A home-equity loan cannot be taken back — the money is already yours. If the point of the line is an emergency reserve, it is weakest exactly when it is most likely to be needed: in a downturn, when prices dip and lenders tighten.
Why not a cash-out refinance?Because of the rate you already have
The third way to turn equity into cash is to replace the whole mortgage with a bigger one. For most homeowners in 2026 that is the expensive option by a wide margin, because their first mortgage was taken out or refinanced when rates were around 3%.
Keep 3.25% mortgage + 15-year home-equity loan at 7.42%
- Monthly payment
- $1,825.72
- Interest still to pay
- $162,368
Cash-out refinance: $330,000 over 30 years at 7.03%
- Monthly payment
- $2,202.15
- Interest still to pay
- $462,774
| Option | Monthly payment | Interest still to pay |
|---|---|---|
| Keep 3.25% mortgage + 15-year home-equity loan at 7.42% | $1,825.72 | $162,368 |
| Cash-out refinance: $330,000 over 30 years at 7.03% | $2,202.15 | $462,774 |
Source: CalculatorAI · calculatorai.app · drafts/heloc-vs-home-equity-loan-numbers.mjs — 30-year rate from Freddie Mac PMMS, Sept 24, 2026
The refinance is $376 a month more and about $300,000 more interest, because it reprices the $280,000 that was borrowed at 3.25% to 7.03%, just to raise $50,000. A second lien leaves the cheap first mortgage alone. If your first mortgage is at 7% or higher, the arithmetic is different — our refinance guide works out the break-even — but at 3% to 5% a cash-out refinance is almost never the cheaper way to raise a modest sum.
Which one fitsFive questions that decide it
Do you know the amount and the date?
A kitchen with a signed quote, a debt you are consolidating: a fixed home-equity loan for the exact amount. Costs that arrive in pieces over two years — a renovation in phases, tuition by semester: a HELOC, so you pay interest only on what is out.
Could your budget absorb $44 more a month?
That is what a 2-point rise adds at the peak on $50,000 paid down over 15 years. If the honest answer is no, the fixed loan's 7.42% is the price of not finding out.
Will you pay principal during the draw period?
Only if you set the payment yourself. A HELOC paid at the minimum for ten years costs more than twice the interest of the fixed loan. If you know you will pay the minimum, compare the HELOC's 30-year total, not its first payment.
Is it for the house?
Interest on either product is deductible only to the extent the money is used to buy, build or substantially improve the home that secures it (IRS Publication 936). Borrowing against the house for a car, a vacation or card debt gets no deduction.
What does the agreement say about fees and freezes?
Home-equity loans usually carry closing costs; many HELOCs have an annual fee, a minimum draw or an early-closure fee. Both can tip a comparison this close. And for a HELOC, read the clause on reducing or freezing the line.
Once the money is borrowed, it is one more debt to manage alongside the others. In the Debt Payoff Tracker, record a home-equity loan with its fixed APR and payment, and a HELOC with its current rate — and update that rate when prime moves, so the payoff date reflects what the line actually costs. If part of the plan is consolidating credit-card balances, the Fed hike guide shows what those cards are costing at 24%, and paying off debt or investing covers what to do with the payment once they are gone.
Where these numbers come from
Rates were read on September 30 and October 1, 2026: the prime rate and fed funds from the Federal Reserve's H.15 release (prime 7.00% for every day of the week ending September 29); the HELOC and home-equity loan averages from Curinos data as published by Yahoo Finance on September 25 (7.09% and 7.42%, for applicants with a credit score of 780 or higher and a combined loan-to-value under 70%); and the 30-year mortgage rate from Freddie Mac's Primary Mortgage Market Survey of September 24 (7.03%). The Fed decision, vote and projections are from its September 16 statement and Summary of Economic Projections. The deduction rule is quoted from IRS Publication 936.
Every payment uses standard amortisation, the same formula as the Home Equity Calculator and Mortgage Calculator. The rate scenarios assume a single permanent change at the stated month, with the HELOC payment re-figured over the remaining term; real HELOCs reprice monthly and some have rate caps or floors, which would soften both the upside and the downside. All examples assume the whole $50,000 is drawn on day one — the most expensive case for a HELOC, since a line drawn gradually costs less interest. Closing costs, annual fees and introductory rates are left out because they vary by lender; each makes the comparison closer than shown. The calculations are in a script so that every figure can be reproduced, and none of this is a recommendation for a particular product — a lender's written quote is the number to decide on.
Frequently asked questions
Is a HELOC or a home-equity loan cheaper right now?
On the late-September averages, a HELOC starts cheaper — 7.09% against 7.42%. Paid off over 15 years, that saves about $1,674 on $50,000 if the rate stays put. A permanent rise of about 0.37 points erases the advantage, and one or two more Fed hikes would make the fixed loan cheaper.
How much did the Fed hike raise my HELOC payment?
Prime went from 6.75% to 7.00%, so a line priced at prime plus a margin rose by 0.25 points. On $50,000 in interest-only draw, that is $10.42 a month or $125 a year. Your statement shows the change one or two cycles after the decision.
Does a home-equity loan rate change when the Fed raises rates?
Not once it has closed. A home-equity loan is fixed for its whole term. New loans are priced off longer-term bond yields, which moved up in September because markets expect more hikes, so a quote today is higher than one from the spring.
What happens when a HELOC draw period ends?
You can no longer borrow, and the minimum payment switches from interest only to principal plus interest over the repayment period. On $50,000 at 7.09% with a 20-year repayment period, the payment rises from $295 to $390 a month. With a 5-year repayment period it rises to $992. Some lines instead require the full balance as a balloon payment.
How much can I borrow against my home?
Most lenders cap the combined total of your mortgage and the new loan or line at 80% to 85% of the appraised value. On a $450,000 home with a $280,000 mortgage, that is $80,000 at 80% and $102,500 at 85%, before the lender's own income and credit checks.
Is HELOC interest tax-deductible?
Only to the extent the money is used to buy, build or substantially improve the home that secures the loan, according to IRS Publication 936. Interest on money used for anything else — a car, a vacation, paying off cards — is not deductible.
