HELOC vs Personal Loan for Home Improvements: Which Is Better?
For a renovation, a HELOC usually has a lower rate, while a personal loan is faster and doesn't put your home on the line. Here's how they compare on cost, speed, risk and taxes, a worked example, and which one suits different projects.
By Pond.com editors Updated 3 min read
Quick answer
- HELOCs and home equity loans usually have lower rates than personal loans because your home secures them.
- Personal loans are unsecured, fund in days and don't need an appraisal or any equity.
- A lower rate over a longer term can still cost more interest in total, so compare total cost, not just the rate.
- Interest on home equity debt can be tax-deductible when used for improvements; personal loan interest isn't.
- For smaller or urgent projects, a personal loan is often simpler; for large ones, home equity usually costs less.
A new kitchen, roof or bathroom can cost tens of thousands of dollars. If you don't have the cash, the two most common ways to borrow are a home equity line of credit (HELOC) and an unsecured personal loan. Each has clear strengths.
This article is general information, not financial or tax advice.
How they compare
| HELOC or home equity loan | Personal loan | |
|---|---|---|
| Secured by your home | Yes | No |
| Typical rate | Lower | Higher, depending heavily on credit |
| Rate type | HELOC variable; home equity loan fixed | Usually fixed |
| Term | Often 10 to 30 years | Usually 2 to 7 years |
| Fees | Appraisal and closing costs, sometimes annual fees | Origination fee on some loans |
| Speed | Weeks | Days |
| Equity needed | Yes, often keeping total borrowing under 80% to 85% of your home's value | No |
| Tax-deductible interest | Possibly, for improvements | No |
A worked example
Borrowing $50,000, at example rates:
- Home equity loan at 8.5% over 10 years: about $620 a month and about $24,400 in total interest.
- Personal loan at 12% over 5 years: about $1,112 a month and about $16,700 in total interest.
The home equity loan has the lower rate and payment, but the longer term means more interest overall. Taking the home equity loan over 5 years instead would cut its total interest well below the personal loan's. Compare the same term where you can.
When a HELOC or home equity loan makes sense
- Large projects, where a lower rate saves a lot.
- Projects paid in stages, where a HELOC lets you draw money as bills arrive.
- You have plenty of equity and a steady income to handle payments, even if a HELOC's rate rises.
- You itemize deductions, so the interest may be deductible.
When a personal loan makes sense
- Smaller projects, often under $20,000 to $30,000, where closing costs on a HELOC would eat into the savings.
- Urgent repairs that can't wait weeks.
- You have little equity, for example after buying recently.
- You don't want to risk your home if your income becomes uncertain.
Before you borrow
- Get firm quotes from contractors, and add 10% to 20% for surprises. See how to hire a contractor.
- Check your credit, which affects both rates. See how to raise your credit score.
- Compare several lenders for each option, including credit unions. See how to compare personal loan offers.
- Compare total cost and monthly payment, not just the rate.
Common questions
Often two to six weeks, because the lender needs an appraisal and title checks. A personal loan can often be approved and funded within a few days, which matters for urgent repairs like a broken furnace or a leaking roof.
Usually, but check for an early closure fee if you close the line within the first few years. You can pay down the balance at any time without closing the line.
Only for small costs you can pay off quickly, or with a 0% intro APR card you're sure you can clear before the promotional rate ends. Regular credit card rates are much higher than either loan type.