What Are the Different Types of Home Equity Loans and Which Is Best?

One benefit of homeownership is building equity and possibly tapping into it. Options for achieving this include fixed‑rate home equity loans, variable‑rate HELOCs, HELOC conversion options, cash‑out refinance, and equity‑sharing agreements.

But with so many choices, you might ask: Which one is right for me?

In this article (Skip to...)

• Fixed-rate home equity loan
• Variable-rate HELOC
• HELOC with conversion option
• Cash-out refinance
• Home equity agreement (HEA)

Types of home equity loans comparison

Here’s a quick comparison of common home equity options to help you find the right fit for your needs.

1. Fixed‑rate home equity loan

Also known as second mortgages, these closed‑end loans let you borrow a lump sum against your home equity, usually up to 80–85% of your home’s value (minus what you still owe on your primary mortgage).

This can translate to tens of thousands of dollars in cash, depending on your equity.

These loans are popular because of their predictability. You get a fixed interest rate and set monthly payments over a term that’s typically between five and 15 years. That consistency makes it easier to budget, and since rates are generally lower than credit cards, you’ll often pay less interest overall.

Approval for a fixed‑rate equity loan works much like your first mortgage. You’ll submit an application, show proof of income, agree to a credit check, and get a home appraisal.

There’s also closing costs (like lender and third-party fees, title work, and possibly points), which you can pay upfront or roll into your loan. After closing, you receive a one-time lump sum of cash.

1. Variable‑rate HELOC (Home equity line of credit)

A HELOC acts like a credit card, but it’s secured by your home. You’ll get approved for a credit limit (based on your equity), and during the draw period (which is typically five to 10 years) you can borrow as needed with the option of making interest-only payments.

After that, you’ll enter a 10 to 20 year repayment period, where you’ll pay both principal and interest.

This structure provides flexibility because you can use funds for ongoing projects, emergencies, or unplanned expenses. However, the interest rate is variable, so your monthly payment can fluctuate with market conditions. That can make it harder to budget long-term.

Approval is similar to a home equity loan, though. The lender reviews your income, credit, and may require an appraisal. There are typically fewer upfront costs than a full refinance, which makes HELOCs a cost-effective way to access funds when you need them.

3. HELOC with conversion option

Some lenders offer HELOCs with a built-in option to convert part or all of your outstanding balance into a fixed‑rate loan. This allows for the best of both worlds.

You get the flexibility of a HELOC’s draw period, with the ability to lock in a predictable fixed payment later.

For example, let’s say you use a HELOC to cover multiple home expenses. You might draw $10,000 to pay contractors during a kitchen remodel, and later take another $10,000 to cover a one-time expense like a new roof.

You could keep the remodeling funds flexible for ongoing work, while locking in a fixed rate on the roof expense to avoid rising interest rates.

Conversion options vary by lender. Some require that you convert within specific time windows, others may charge a fee or enforce minimum conversion amounts.

4. Cash‑out refinance

A cash‑out refinance replaces your first mortgage with a new, larger mortgage and gives you the difference in cash. This is ideal if you want to tap equity and possibly secure a lower interest rate, better term, or remove someone from the mortgage.

For instance, if you owe $150,000 on a home worth $400,000, you could refinance for $180,000 and receive $30,000 in cash.

You’ll go through the full underwriting and appraisal process again, and you may face closing costs. And since you’re replacing your mortgage, you also reset your amortization schedule. This could mean more interest overall, unless you keep the same term.

However, if mortgage rates have gone down, you could still benefit by getting lower monthly payments, plus a lump sum of cash to use however you like.

If you’re considering a cash-out refinance but want to explore other ways to tap your home’s equity, check out these 4 alternatives to cash-out refinancing for more options.

5. Home equity agreement (HEA)

A home equity agreement, or HEA, lets you access cash from your home without taking out a loan or making monthly payments. Instead, you get a lump sum from an investor in exchange for a share of your home’s future value.

You’ll repay the investor later, usually when you sell or refinance, by giving them a percentage of your home’s appreciated value. It’s a way to tap equity without adding debt, but you do give up a portion of your future profits.

How to choose the right one

The best home equity option depends on your financial goals, how you plan to use the funds, and your comfort with risk. If you want predictable payments and a lump sum, a fixed-rate home equity loan may be your best fit.

Need flexibility? A HELOC, or one with a conversion option, can give you access to funds as needed. If you’re refinancing anyway or want to change your mortgage terms, a cash-out refinance could make sense.

And if you want to avoid monthly payments altogether, a home equity agreement lets you access cash in exchange for a share of your future home value.

Take time to compare your options and choose what aligns best with your needs.