Home Equity Loan for Debt Consolidation: HEL vs HELOC

A home equity loan for debt consolidation swaps high-rate unsecured balances for one fixed-rate loan secured by your house. With credit card plans averaging about 22.4% APR on accounts charged interest (Federal Reserve, August 2026), the interest saving can be large, but you take on closing costs, lose any tax deduction, and put your home on the line.

This page has been rewritten for October 2026. The earlier version argued for a HELOC with round-number examples; this one compares the two home equity routes side by side, because for most people consolidating a fixed pile of debt, a fixed-payment home equity loan (HEL) is the more disciplined tool. You'll find current benchmark rates with dates, worked payment tables, the costs people forget, and the situations where neither option is a good idea.

Home equity loan vs HELOC for debt consolidation

Both borrow against the equity in your home, and both are second liens behind your mortgage. The difference is how the money arrives and how you repay it.

The fixed payoff date is the main argument for a HEL. A HELOC's interest-only phase makes the monthly number look small, which is exactly what lets a balance linger. If you want to see the HEL payment for your own numbers, run them through our debt consolidation calculator before you talk to a lender.

What the rates look like right now (and their dates)

We don't publish a single "today's rate" for home equity loans, because offers depend on your credit score, combined loan-to-value (CLTV) and state. These are the dated benchmarks we can source:

Home equity loan rates are typically fixed and priced off a lender's own cost of funds, so ask at least three lenders (a bank, a credit union and an online lender) for a written quote on the same day. Treat any rate in an advert as a best-case sample.

Worked example: $30,000 of card debt three ways

Assume $30,000 of credit card debt at the Fed's 22.36% average. For the home equity loan we use an illustrative 8.75% fixed rate, which is an assumption, not a quote; plug in your own offer.

The table holds two lessons. First, the rate cut is real: on a five-year schedule the HEL saves about $13,000 in interest before costs. Second, a long term nearly erases the gain; stretching $30,000 over ten years at 8.75% costs about $15,100 in interest, close to what the cards would have cost on an aggressive payoff. Keep the term short and, if you can, keep paying what you paid before.

Subtract the costs before you celebrate

The Consumer Financial Protection Bureau warns that closing costs on a home equity loan "can be hundreds or thousands of dollars." Ask for the Loan Estimate and add origination, appraisal, title and recording fees to the interest figure above. If fees run to $1,500, the five-year HEL still saves roughly $11,400 against the five-year card payoff in our example; on a small balance or a short payoff, fees can wipe the saving out.

The tax point: consolidation interest isn't deductible

Home equity interest is deductible only when the borrowed money is used to buy, build or substantially improve the home that secures the loan, and only if you itemize. That rule from the 2017 tax law was made permanent by the One Big Beautiful Bill Act, so paying off credit cards, car loans or medical bills with a home equity loan doesn't create a deduction. Don't let a lender or broker include a tax saving in your comparison for a consolidation loan. See IRS Publication 936 for the current rules, or our HELOC tax deduction calculator if part of the loan funds a renovation.

The risks to weigh honestly

• You convert unsecured debt into secured debt. Miss card payments and you face collections; miss home equity payments and the CFPB is blunt that you could lose your home in foreclosure.
• Equity you use isn't available later. The CFPB notes it may not be there for an emergency, repairs or renovations, and a fall in home values could leave you underwater.
• Re-running the cards. The CFPB cautions that taking on new debt to pay old debt can just kick the can down the road unless spending changes. If the cards fill up again you have both debts.
• Variable-rate drift (HELOC only). If Prime rises, a HELOC payment rises with it. A HEL's fixed rate removes that risk.
• Payment shock at the end of a HELOC draw period. Interest-only payments switch to principal-and-interest; see our page on using a HELOC to pay off credit cards for that timeline.

When a home equity loan for debt consolidation makes sense

It tends to work when most of these are true: the debt is high-rate (cards, store cards, some personal loans) and large enough that fees are a small share; you have substantial equity left after the loan, so you aren't stretched if prices dip; your income is stable; you've closed or frozen the cards you're paying off, or have a written plan for them; and you choose a term no longer than you'd realistically take to pay the debts anyway.

It usually doesn't make sense when the balance could be cleared within a year from cash flow, when your job or income is uncertain, when the debt is already low-rate (such as federal student loans with protections you'd give up), or when the root cause is ongoing overspending. A nonprofit credit counselor can review a debt management plan as an alternative that doesn't touch your home.

Alternatives to compare on the same page

How much equity you can actually use

Lenders size the loan from your combined loan-to-value (CLTV): the mortgage plus the new loan, divided by the home's appraised value. Take a home appraised at $400,000 with $250,000 left on the mortgage. At an 80% CLTV cap, total borrowing can reach $320,000, so the most you could take is about $70,000. At 85% the ceiling is $340,000, or about $90,000. If your debts are $30,000, either cap leaves a healthy cushion; if they are $85,000, you'd be borrowing close to the limit, with little room if prices fall or a repair comes up. A useful rule of thumb is to leave enough equity unused that a 10% drop in value wouldn't push you near 100% CLTV. Our loan-to-value calculator does the arithmetic for your numbers.

Step-by-step: doing it safely

1. List every debt with balance, rate and minimum payment.
2. Check your equity: lenders commonly cap combined borrowing at around 80-85% of the home's value.
3. Get three written quotes for both a HEL and a HELOC on the same day, with fees itemized.
4. Compare total cost over the same payoff period, not monthly payment.
5. Have the lender pay creditors directly where possible, then confirm each account shows zero.
6. Close or lock the paid-off cards, and set up autopay at your old total payment amount.

This is general information, not financial or tax advice. Rates and lender terms change daily; confirm everything in writing with the lender before you sign.

This article is general information, not financial, tax or legal advice. Figures are approximate and change over time — always verify with a qualified professional or the official source before making a decision.

Written and reviewed by the HELOC Payment Calculator editorial team. Facts checked against primary sources; see the reference above.

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