Home Equity Loan vs HELOC: Payments, Disclosures and Your Right to Cancel

Published by the Modern Lending Solutions editorial team. Last reviewed: October 30, 2026.

Short answer: a home equity loan gives you one lump sum with a set repayment schedule, and its rate may be fixed or adjustable. A home equity line of credit (HELOC) lets you borrow, repay and borrow again up to a limit during a draw period, and then repay over a repayment period; its rate is variable in the CFPB’s description. Federal rules give the two different disclosures, but both let you cancel within three business days when your principal dwelling secures the debt, and both put your home at risk if you do not repay. This page covers federal law only; other rules may apply where you live. It is general information, not legal or financial advice.

At a glance

Item	Home equity loan	HELOC
Type of credit	Closed-end: one loan, one schedule	Open-end: a credit line you can draw on again as you repay
How you get the money	A lump sum at closing	Draws up to the credit limit during the draw period
Rate	Fixed or adjustable	Variable in the CFPB’s description; some plans let you convert a balance to a fixed rate
Payment	Set by the loan schedule	Depends on the balance and the rate; can rise when the repayment period starts
Disclosures	Loan Estimate and Closing Disclosure (12 CFR 1026.19(e)-(f))	HELOC disclosures and the CFPB booklet (12 CFR 1026.40(d)-(e))
Right to cancel (principal dwelling)	The loan (12 CFR 1026.23)	Opening the plan and later limit increases (12 CFR 1026.15)
Ability-to-repay rule	Covered (12 CFR 1026.43(a))	Excluded (12 CFR 1026.43(a)(1))

The CFPB says that with a home equity loan you receive the money in a lump sum and may have a fixed or adjustable rate, that with a HELOC you can draw money multiple times from an available maximum, and that if you already have a mortgage, either one is a second mortgage you pay in addition to your first (CFPB: home equity loan vs HELOC, last reviewed August 28, 2026, read October 30, 2026). It also says you could lose your home if you fall behind on a HELOC, that monthly payments can be significantly higher once you enter the repayment period, and that in some cases the whole balance is due when the repayment period begins (CFPB: what is a HELOC, last reviewed August 28, 2026). For other ways to borrow, see HELOC vs personal loan.

Example: payments on the same amount

This example is only for the math, with example rates and terms, not offers from any lender. The HELOC rate is held at 8.5% the whole time only for the math; a variable rate changes with its index. The full $50,000 is drawn at the start, and HELOC payments are interest only during the draw period. Payments are rounded to the dollar.

Item	Home equity loan	HELOC
Amount and rate	$50,000 at a fixed 8.0%	$50,000 drawn at 8.5% (variable)
Term	15 years (180 months)	10-year draw period, then 20-year repayment period
Payment	$478 for 180 months	$354 for 120 months (interest only), then $434 for 240 months
Total paid	$478 × 180 = $86,040	$42,480 + $104,160 = $146,640
Interest: total paid − $50,000	$36,040	$96,640

In this example, the HELOC payment rises by $434 − $354 = $80 a month when the repayment period starts, and the HELOC costs more in interest because the balance is not paid down for 10 years and is repaid over a longer time. If the contract sets a maximum rate of 18.0% (an example figure), the interest-only payment on $50,000 at that rate would be $750. Shorter terms, extra payments or a different rate path give different results.

Which disclosures you get

For a closed-end loan secured by real property, other than a reverse mortgage, the creditor must deliver or mail a Loan Estimate no later than the third business day after it receives your application, and you must receive the Closing Disclosure no later than three business days before consummation (12 CFR 1026.19(e)(1)(i) and (iii)(A), (f)(1)(ii)(A), eCFR, text up to date as of October 28, 2026, read October 30, 2026). A HELOC is open-end credit, so those forms do not apply. Instead, the HELOC disclosures and the CFPB booklet What You Should Know About Home Equity Lines of Credit must be given when you get the application, or mailed within three business days if you applied by phone, through a broker or from a publication (12 CFR 1026.40(b) and (e), eCFR). The HELOC disclosures include the length of the draw and repayment periods, whether a balloon payment may result, any limits on rate changes and the maximum rate, and the minimum payment at that maximum rate for a $10,000 balance (1026.40(d)(5) and (d)(12)(ix)-(x)). If a disclosed term changes before the plan opens, other than through the index, and you decide not to open it, all application fees must be refunded, and no one may charge a nonrefundable fee until three business days after you receive the disclosures and booklet (1026.40(g)-(h)). See HELOC application disclosures and when a mortgage application starts.

Your right to cancel

For a closed-end loan secured by your principal dwelling, each owner whose interest is subject to the lien may cancel until midnight of the third business day after consummation, delivery of the cancellation notice, or delivery of all material disclosures, whichever comes last (12 CFR 1026.23(a)(1) and (a)(3)(i), eCFR). A loan to buy or build the home is exempt, and a refinance by the same creditor is covered only for new money above the existing balance and costs (1026.23(f)(1)-(2)).

For a HELOC secured by your principal dwelling, the right applies when the plan is opened, when a security interest is added or increased, and when the credit limit is increased; it does not apply to each draw within an existing limit, and the same three business day deadline applies (12 CFR 1026.15(a)(1) and (a)(3), eCFR). If the notice or material disclosures are not delivered, the right can last up to 3 years under either rule. See the right to cancel a home equity loan; for questions about a late cancellation, talk to a lawyer.

Rate limits

For any dwelling-secured consumer credit contract, the creditor must include in the contract the maximum interest rate that may apply during the term when the APR may increase after consummation (closed-end) or during the plan (open-end) (12 CFR 1026.30, eCFR). The official comments say this covers increases tied to an index or formula and increases within the creditor’s discretion, and does not cover credit with no contractual right to raise the rate, such as a fixed-rate loan (Supplement I, comment 30-1, eCFR). A fixed-rate home equity loan therefore has no such maximum; an adjustable-rate home equity loan and a variable-rate HELOC do.

For a HELOC, the creditor may change the APR only based on an index outside its control that the general public can see (12 CFR 1026.40(f)(1)). The same section limits when a creditor may end the plan and demand the full balance, and when it may freeze or reduce the line; see HELOC credit line freezes.

Questions to ask the lender

Is the rate fixed or variable, and what is the maximum rate in the contract?
For a HELOC: how long are the draw and repayment periods, and how is the minimum payment figured in each?
Will the minimum payments repay the whole balance, or could a balloon payment be due?
Can I convert a HELOC balance to a fixed rate, and what does that cost?
What fees apply at opening, each year, and if I close the line early?
What is my payment if the rate reaches the maximum?

Checklist

Decide whether you need one sum now or access to funds over time.
Compare the payment in the repayment period, not only the draw period payment.
Find the maximum rate in the contract and figure your payment at that rate.
Keep the Loan Estimate and Closing Disclosure, or the HELOC disclosures and booklet.
Note the last day to cancel on your rescission notice.
If you are already behind on your mortgage, talk to a housing counselor first.

The CFPB suggests talking to a housing counselor before you take a home equity loan or HELOC if you are having trouble paying your mortgage; to find housing counseling agencies that HUD has vetted, use the CFPB housing counselor search. You can submit a complaint at consumerfinance.gov/complaint.

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Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.

Home Equity Loan vs HELOC: How They Differ