In May 2026, a home equity loan costs slightly more than a HELOC. The national average HELOC rate sits at 7.10%, while home equity loans average 7.37%—a 0.27 percentage point difference. However, this rate advantage alone doesn’t tell the whole cost story. If you borrow $25,000 over 10 years at 6.95%, you’d pay $289.63 monthly with a fixed-rate home equity loan.
That predictable payment is worth something, especially if interest rates climb. A HELOC offers flexibility and lower initial rates, but carries the risk of rising payments if the Federal Reserve continues its tightening cycle. The cheaper option depends on how you plan to use the money, your risk tolerance, and your credit profile. Most borrowers find one option clearly cheaper once they account for closing costs, fees, and rate stability. Understanding the full cost—not just the advertised rate—will save you thousands over the life of your loan.
Table of Contents
- What’s the Real Rate Difference Between HELOCs and Home Equity Loans?
- Fixed vs. Variable Rates—Why Payment Stability Costs More
- Closing Costs and Hidden Fees That Affect Your True Cost
- How Your Credit Score Impacts the Real Cost
- The Danger of Variable Rates in a Rising-Rate Scenario
- The Current Rate Environment and Why Recent Declines Matter
- Choosing Between HELOC and Home Equity Loan—Practical Guidelines
- Conclusion
What’s the Real Rate Difference Between HELOCs and Home Equity Loans?
home equity loans carry slightly higher rates across the board. The national average for home equity loans reached 7.37% as of May 1, 2026, according to Yahoo Finance data, while Bankrate reported HELOC rates at 7.10%—about 27 basis points cheaper. For longer-term fixed loans, the gap widens slightly. On a 15-year home equity loan, Bankrate shows rates averaging 8.03% for $30,000 loans, compared to 7.24% for HELOCs tracked by Curinos data. That 0.27% difference matters most on larger loans. On a $100,000 loan, that spread translates to roughly $270 in annual interest savings with a HELOC. Over a 10-year period, that’s $2,700 before accounting for rate fluctuations.
But here’s the catch: HELOC rates are variable, meaning they can increase. A home equity loan’s fixed rate protects you from future rate hikes, which is increasingly valuable in an uncertain rate environment. The real comparison comes down to monthly payments. On a $25,000 home equity loan at 6.95% over 10 years, you’ll pay $289.63 monthly. Over 15 years at the same rate, the payment drops to $224.01. A HELOC at 7.10% would start slightly higher, but only if you’re drawing the full amount immediately. Most HELOC borrowers draw gradually, keeping their early payments lower.
Fixed vs. Variable Rates—Why Payment Stability Costs More
When you choose a home equity loan, you’re paying a premium for payment certainty. Your interest rate and monthly payment never change, regardless of what happens in the broader economy. This matters more than you might think. HELOC rates are variable, tied to the prime rate, meaning your monthly payment can jump if the Federal Reserve raises rates again. Consider the recent history: HELOC rates averaged around 9% APR in early 2025, then fell more than 2.5 percentage points in 18 months to today’s 7.10%.
that decline helped existing HELOC borrowers—their payments shrank automatically. But the flipside is real. If rates reverse and climb back toward 9% or higher, a HELOC borrower’s monthly payment could increase by $100 or more per month on a $25,000 draw. A fixed-rate home equity loan borrower faces no such risk. The tradeoff is this: pay the higher rate today (home equity loan), or gamble on rates staying stable or falling further (HELOC). If you’re borrowing near market peaks or have limited budget flexibility, the fixed-rate home equity loan’s predictability justifies its cost premium.
Closing Costs and Hidden Fees That Affect Your True Cost
Most borrowers overlook closing costs until late in the lending process, but they’re a major component of total cost. Both HELOCs and home equity loans typically carry 2% to 5% in closing costs. On a $100,000 loan, that’s $2,000 to $5,000 due at closing. Some lenders advertise zero closing cost options, but those savings usually come by rolling the costs into your interest rate or loan term, making them more expensive long-term. HELOCs pile on additional fees that home equity loans don’t typically charge.
Annual membership fees ($50–$100), inactivity fees (charged if you don’t use the line in a certain period), transaction fees per withdrawal, and early closure penalties all add up. One lender, for example, charges a 1% early closure fee if you pay off within 30 months—that’s $1,000 on a $100,000 line. Home equity loans are simpler: you pay closing costs upfront, then nothing but interest and principal. If you’re certain you’ll use the full HELOC amount over time, the extra fees may not sting. But if you’re uncertain, or if you might close the account early, those hidden costs favor the home equity loan. Make sure to request a loan estimate that lists all fees, then compare the total cost of borrowing, not just the interest rate.
How Your Credit Score Impacts the Real Cost
Your credit score determines your rate more than any other factor. National averages are helpful context, but they hide a critical reality: rates range from 6% to 18% depending on creditworthiness and lender. Borrowers with excellent credit can expect rates between 5.25% and 6.50%, while those with fair or poor credit may pay 10% or higher. This spread is enormous. A $50,000 loan at 5.50% (excellent credit) costs $2,750 annually in interest. The same loan at 9.50% (fair credit) costs $4,750—a $2,000 annual difference, or $20,000 over a decade.
If you’re considering tapping home equity, spend 30 days raising your credit score if possible. Paying down credit cards to lower your utilization ratio, disputing inaccurate items on your report, or waiting for negative marks to age can move you to a better credit bracket and save thousands in interest. Credit unions and regional banks typically offer 0.25% to 0.75% lower rates than big national lenders like Wells Fargo or Bank of America. That advantage compounds. On a $100,000 loan, 0.50% less in interest means $500 in annual savings. Shopping at community lenders takes more time, but it’s often worth it. Get quotes from at least three lenders—one national, one credit union, and one regional bank—before committing.
The Danger of Variable Rates in a Rising-Rate Scenario
HELOC borrowers in 2024 and early 2025 enjoyed falling rates as the Federal Reserve cut interest rates. But that tailwind won’t last forever. If inflation resurfaces or unemployment drops too quickly, the Fed may pause or reverse course. A HELOC that costs 7% today could jump to 8% or higher within 12 months of a rate hike cycle beginning. Let’s model this risk: You take a $50,000 HELOC at 7%, paying $291.67 monthly during the draw period. If rates spike to 9% (still below 2025’s levels), your monthly payment jumps to $375—a $83 increase. Over a year, that’s an extra $1,000 in payments you didn’t budget for.
Home equity loan borrowers face no such shock. This is why HELOC works best for people with financial buffers and short payoff timelines. If you’re tight on cash or planning a 10+ year repayment, the fixed home equity loan’s stability is worth the higher rate. Another warning: Read the HELOC’s terms carefully. Some lenders include a conversion feature that lets you lock in a fixed rate partway through the draw period, but it often comes at a cost. Others allow HELOCs to “mature” from a draw period into a repayment-only period, at which point you can no longer withdraw funds—you only pay interest and principal. These transitions can trigger payment shocks that feel like surprise rate hikes.
The Current Rate Environment and Why Recent Declines Matter
The 2.5+ percentage point drop in HELOC rates over the last 18 months is significant. When rates were 9% in early 2025, the case for fixed-rate home equity loans was compelling—you’d lock in certainty at a premium rate that was still historically reasonable. Today, with HELOCs at 7.10%, that urgency has faded. The rate gap between the two products has narrowed. This environment favors borrowers who can handle variable rates.
If you’re young, have stable income, and plan to pay off your HELOC in 5–7 years, you’re likely to ride this cycle downward or stay near current levels. The lower starting rate of the HELOC saves you money. But if you’re near retirement or on a fixed income, the security of a fixed-rate home equity loan outweighs the current rate advantage. Pay attention to Fed statements and economic forecasts. If rate hikes are on the horizon, lock in a home equity loan now. If cuts seem likely, a HELOC remains attractive.
Choosing Between HELOC and Home Equity Loan—Practical Guidelines
Use a HELOC if you’re uncertain about the amount you’ll need, anticipate multiple withdrawals over time, or plan to repay quickly (5 years or less). The flexibility and lower rate advantage compound when you don’t hold the full balance for 10+ years. HELOCs also suit business owners or investors who need periodic access to capital for varied purposes—renovations, equipment purchases, working capital—and can manage variable payments. Choose a fixed-rate home equity loan if you need a set amount upfront, prefer unchanging monthly payments, or plan to carry the debt for 7+ years. If you’re consolidating high-interest debt into a home equity loan, the fixed payment helps you create a payoff plan and avoid the trap of variable payments derailing your timeline.
Home equity loans also appeal to older borrowers and anyone who’d struggle with a payment increase. The slightly higher rate buys peace of mind worth its cost. As we look ahead to 2027, the wild card remains the Federal Reserve’s policy path. Inflation data, employment reports, and geopolitical surprises will determine whether rates fall further, hold steady, or rise. Until we see clear direction, HELOC borrowers should stress-test their budgets for a 1–2 percentage point rate increase, and home equity loan borrowers should recognize they’ve secured a favorable fixed rate relative to the recent past.
Conclusion
Home equity loans cost slightly more than HELOCs on a rate basis—7.37% versus 7.10% as of May 2026—but that single number doesn’t determine which product is cheaper for you. A $25,000 home equity loan runs $289.63 monthly on a 10-year term, with that payment locked for the life of the loan. A HELOC offers a lower starting rate but exposes you to payment increases if interest rates rise. Factor in closing costs (2–5%), HELOC fees (annual, inactivity, early closure penalties), and your credit score’s impact on your actual rate, and the choice becomes personal rather than mathematical.
Start by getting quotes from at least three lenders—compare the total interest paid over your planned repayment period, not just the advertised rate. If you value stability and plan to carry the debt long-term, the home equity loan’s fixed rate justifies its premium. If you need flexibility, have a short timeline, and can absorb payment increases, the HELOC’s lower starting rate wins. Both products have dropped significantly since early 2025, so you’re borrowing at reasonable levels either way. The key is choosing the product that matches your financial situation and risk tolerance.
