HELOC versus personal loan

A home equity line of credit is usually cheaper per dollar than a personal loan, because the lender can recover from your home if repayment stops. A personal loan costs more and cannot touch your home. The decision is not which advertised rate is lower. It is whether the project justifies putting the property up as collateral, and whether the monthly budget can absorb a variable rate. The lowest rates are only available to the most qualified applicants.

Source: Freddie Mac Primary Mortgage Market Survey, published at freddiemac.com/pmms. These are national averages for conforming loans. What you are quoted depends on your credit profile, points paid, loan amount and property.

How each product is priced

A home equity line of credit, commonly called a HELOC, is a revolving line secured by a charge on your home behind the first mortgage. The rate is usually variable and tied to a published benchmark, so the payment moves whenever that benchmark moves. A home equity loan is the same security with a fixed rate and a fixed instalment, which makes the payment predictable but the balance harder to redraw.

A personal loan is unsecured. The lender prices it on your credit file, income and existing debt, with no property to recover if you stop paying. That added risk is why the rate sits above a secured product for the same borrower, and why the gap widens as credit quality falls. The lowest rates are only available to the most qualified applicants.

The published rate backdrop

Freddie Mac publishes the national average mortgage rate every week, and the table above shows the latest six readings. A HELOC is normally priced against a short-term index rather than the 30-year average, but the two tracks move in the same direction over time, so the published average is a useful yardstick for the direction of secured borrowing.

In Canada the benchmark is the Bank of Canada overnight target, which stood at 2.25% on 2026-09-10. Canadian variable-rate home equity products are priced as a spread over that rate, so a change in the target reaches the line at the next scheduled reset rather than immediately.

Total cost is the only fair comparison

Put both offers on the same borrowed amount over the same number of months, then compare total repayable. A HELOC at a lower rate stretched across ten years can still cost more than a personal loan cleared in three, because interest accrues for as long as any balance stands. The monthly payment hides that, because a long term always makes the payment look gentle.

A HELOC also lets you draw, repay and draw again. That flexibility is genuine, and it is also the main hazard. A line that is repaid and redrawn never closes, so the balance can quietly outlive the project it funded. A personal loan is closed by its schedule, which is a discipline the line does not impose.

• Compare total repayable on the same amount and term, never the monthly payment alone.
• Ask whether the HELOC rate is variable, which index it follows, and how often it resets.
• Add up the closing costs: appraisal, title work, recording and any annual fee.
• Confirm whether the personal loan charges an origination fee deducted from the principal.

What each route puts at risk

A HELOC is secured by your home. Default and the lender can pursue the property, and the second charge complicates any later refinance or sale. A personal loan default damages your credit and can reach collections, but the house is never collateral and the lender cannot force a sale.

That difference decides many cases on its own. When the amount is modest, the term is short, or the home is the one asset that must stay clear, the unsecured route is the safer structure even when it carries a higher rate. Security buys a lower rate and sells a larger risk.

Qualification, speed and documents

A HELOC requires equity, documented income and usually a fresh appraisal, so approval can take weeks and the appraisal fee is due before any money moves. A personal loan can fund within days and needs no property valuation, which matters when the expense cannot wait.

Lenders weigh credit history, employment stability and collateral differently, and a pre-qualification is not an approval. Treat any quoted ceiling as a number to test real offers against, and gather the documents the lender lists before you apply, because a complete file moves faster.

When each one wins

Choose a HELOC for a large, staged project with a long horizon, when you hold equity and can absorb a variable payment. Choose a personal loan for a defined amount and a fixed term, and when you want the borrowing finished without the home entering the agreement at all.

If the amount is small, run the affordability calculator before applying anywhere. If the amount is large and the home is the collateral, run the loan payment calculator for both structures over an identical term and compare the totals rather than the payments.

A worked comparison to run yourself

Take a $20,000 project. Price a HELOC at a variable rate over ten years, then price a personal loan at a higher fixed rate over three years. The HELOC payment will be lower, and the personal loan will very often show the smaller total cost, because the balance is retired while the line is still charging interest.

Run the same two structures on the loan payment calculator and compare the total interest line. The result is not a rule about which product is better. It is a rule about term length, which is the variable most borrowers never adjust.

Sources for every figure on this page

Related reading

• Home equity costs
• Personal loan costs
• Loan payment calculator