The short answer
A home equity loan gives you a lump sum at a fixed rate that you repay monthly. If you can afford the payment and qualify at a reasonable rate, it's usually cheaper. In our standard example ($100,000 against a $750,000 home with a $300,000 mortgage, 4% growth, 7 years), home equity investments cost 14.1% to 15.9% a year.
A home equity investment skips the payment and the income test, at the price of sharing your home's value.
Side by side
| Home equity investment | Home equity loan | |
|---|---|---|
| What you get | A lump sum | A lump sum |
| Monthly payment | None | Yes, fixed |
| What it costs | A share of your home's value or gain at settlement | A fixed interest rate |
| Predictability | Total unknown until you settle | Known from day one |
| Qualification | Looser credit, no income test | Income and credit underwritten |
| Your home's appreciation | You give up a share | You keep all of it |
When a home equity loan wins
- You can comfortably make a fixed monthly payment.
- You qualify at a reasonable rate.
- You want a known total cost and to keep all of your home's growth.
When an HEI fits
- A monthly payment isn't workable right now.
- Your income is irregular or your credit rules out a good rate.
- You expect modest appreciation and have a plan to settle within the term.
How HEI cost moves
An HEI's cost depends on your home's growth. Across the providers we can model, our example costs 3.5% to 11.5% a year if your home is flat, and 18.5% to 23.1% a year at 8% annual growth. A home equity loan's cost doesn't move. See the full table, or run your own numbers.
Questions
Is a home equity loan the same as a HELOC?
No. A home equity loan is a one-time lump sum, usually at a fixed rate. A HELOC is a credit line you draw from, usually at a variable rate. See HEI vs HELOC.
Which is faster to get?
Timelines vary by provider and lender. Both usually require an appraisal and closing, so plan for several weeks either way.
Run your own numbers
Every figure here uses a standard example. The calculator runs your home, your mortgage, and your assumptions through every provider at once.
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