Quick answer

For large or multi‑stage home repairs where costs are uncertain, a HELOC often beats a personal loan because it typically offers lower interest rates, flexible draws (borrow what you need when you need it), and interest‑only payments during the draw period. Personal loans are better for small, one‑time projects when you want a fixed monthly payment and no risk to your home.

Why a HELOC can be better (when to prefer it)

  • Lower borrowing cost: HELOC rates are usually lower than unsecured personal loans because they’re secured by home equity (see Consumer Financial Protection Bureau).
  • Flexible draws: You borrow only what you need, which reduces interest paid if the project is phased or overruns occur.
  • Interest‑only options: Many HELOCs let you pay interest only during the draw period, lowering near‑term payments while work is underway.
  • Higher maximums: HELOCs commonly offer larger credit limits, useful for major renovations or multiple repairs.

When a personal loan may be better

  • Small, single‑cost projects: If you know the exact price and it’s modest, a fixed‑rate personal loan can simplify budgeting.
  • No home at risk: Personal loans are unsecured, so missed payments won’t directly put your home at risk of foreclosure.
  • Fixed‑rate stability: If you prefer predictable payments and won’t refinance, a fixed‑rate personal loan avoids variable HELOC rates.

How a HELOC works (brief)

A HELOC gives you a credit limit based on your home’s equity. You enter a draw period (typically 5–10 years) when you can borrow, then a repayment period when principal and interest must be repaid. Rates are usually variable and tied to an index plus a margin; lenders may also offer options to convert draws to fixed‑rate balances.

Key risks and costs to watch

  • Variable rates: HELOCs often have variable interest rates. If rates rise, payments can increase—see our guide on HELOC draw periods and rate risk.
  • Secured debt: A HELOC is secured by your home; default can lead to foreclosure. Borrow only what you can repay.
  • Fees and closing costs: Some HELOCs have appraisal fees, origination fees, annual fees, or inactivity penalties.
  • Interest deductibility: Under current tax rules, interest on a HELOC is generally deductible only if the funds are used to buy, build, or substantially improve the home that secures the loan. Confirm details with IRS guidance (see IRS Publication 936).

Real‑world example (simple math)

  • Scenario: $25,000 project.
  • HELOC: 5% variable rate, borrow $25,000 only when needed → interest ≈ $1,250 first year (if full draw). Draw timing can reduce interest further.
  • Personal loan: 10% fixed rate, $25,000 → interest ≈ $2,500 first year.

In my experience, homeowners doing phased remodels or facing uncertain contractor timing often save materially with a HELOC because they only pay interest on funds actually drawn.

How to decide—quick checklist

  1. Estimate total cost and whether work will be phased.
  2. Check available equity and lender limits (typical requirement: 15–20% equity remaining).
  3. Compare rates (APRs) and total fees for both options.
  4. Consider rate type: do you accept variable payments? If not, consider a personal loan or convert HELOC portions to fixed rate.
  5. Read the HELOC terms for draw period length, repayment schedule, and penalties.

Next steps and resources

Professional note and disclaimer

In my practice helping homeowners choose between loan products, I’ve found HELOCs work best when homeowners (a) have sufficient equity, (b) stick to a draw plan, and (c) have a repayment strategy if rates rise. This article is educational and not personalized financial advice—consult a mortgage professional or financial advisor about your situation.