Mortgages are term loans that are used to buy or refinance a home.
Jump to insightA home equity loan is a fixed-rate term loan that lets you borrow cash from your home's equity.
Jump to insightThe interest on both loans is generally tax deductible, though HELs must be used for a qualifying purpose.
Jump to insightWhat is a mortgage?
A mortgage is a type of loan used to buy or refinance a home. The mortgage uses the home as collateral to secure the loan, meaning the lender can take the property if you fail to repay the money owed. Mortgages can have fixed or variable interest rates, and they come in a range of terms, such as 10, 15, 20 or 30 years.
There are many different types of mortgages, including conventional loans, jumbo loans, government-sponsored loans and adjustable-rate mortgages (ARMs). Maximum loan amounts generally vary by county or type of loan.
» MORE: Best mortgage lenders
What is a home equity loan?
A home equity loan is a second mortgage that taps your home's equity, which is the amount your home is worth minus what you owe. Homeowners often use home equity loans to fund emergency expenses, home improvements, consolidate or pay off debt, or pay educational expenses.
Once a home equity loan is approved, you’ll receive a lump sum. You’ll then repay the loan according to a set repayment schedule. Typical term lengths for home equity loans range from five to 30 years. These loans also have a fixed interest rate, which is typically higher than a primary mortgage rate.
The amount you can borrow varies based on your home's value, your current mortgage balance and the lender's maximum loan-to-value (LTV) ratio. Typically, the maximum LTV ratio for a home equity loan is 80%, including the balance of your primary mortgage.
For example, if your home is worth $400,000 and you owe $250,000, the maximum home equity loan you could get would be $70,000.
($250,000 mortgage balance + $70,000 HEL amount) / $400,000 home value = 80% LTV ratio
Comparison: home equity loan vs. mortgage
Both mortgages and home equity loans are secured by your home and typically have fixed interest rates throughout the loan term. However, they have some differences. The table below shows the differences and similarities between mortgages and home equity loans.
| Feature | Mortgage | Home equity loan |
|---|---|---|
| Interest rate | Fixed or variable | Fixed |
| Loan term | Typically 10 to 30 years | 5 to 30 years |
| Maximum loan amount | Varies by loan type | Varies by lender |
| Maximum LTV ratio | Up to 100% LTV ratio, but depends on the loan type | Up to 80% LTV ratio, but varies by lender |
| Tax deductible interest | Up to $750,000 or $375,000 if married filing separately | Up to $750,000 or $375,000 if married filing separately (combined with the primary mortgage)* |
*Tax deductible only if the home equity loan is used to buy, build or improve the home
Each loan type can be a good financing option, depending on a homeowner's goals. In some cases, a homeowner may have both loans to accomplish multiple goals at once.
"If a homeowner's existing first mortgage has a very low fixed interest rate, then a home equity loan (second mortgage) would probably be a much cheaper option in the long run,” said Casey Fleming, author of "Buying and Financing Your New Home.”
FAQ
Is it better to pay off a mortgage or home equity loan?
Generally, it’s better to pay off the loan with the higher interest rate first. For example, say you inherited a large sum of cash. If your home equity loan has a higher rate than your mortgage, it would be better to prioritize paying off that balance before paying off the rest of your mortgage.
Can you pull equity out of your home without refinancing?
Instead of refinancing a mortgage, you can pull equity out of your home with a home equity loan. While home equity loans carry higher rates, they’re ideal for borrowers who want to withdraw cash from their homes without refinancing their existing mortgage.
» RELATED: Cash-out refinance vs. home equity loan
How is a home equity loan different from a home equity line of credit?
Like a home equity loan, a home equity line of credit (HELOC) allows homeowners to tap into their home's equity. However, a HELOC works more like a credit card since you’ll get access to a line of credit. You’ll have a maximum borrowing limit and only pay interest on the amount drawn from the line.
HELOCs also come with draw periods, where you'll have interest-only payments based on your average balance. You can draw down and repay the balance as often as you like. After the draw period expires, the loan will convert to an amortizing loan with a fixed interest rate.
Bottom line
When comparing a home equity loan vs. a mortgage, both use a home as collateral to secure the loan. However, a mortgage is used to buy a home and a home equity loan is used to borrow money using your home equity. Both also typically offer stable monthly payments and terms of up to 30 years. While home equity loans usually have fixed rates, mortgages can have fixed or variable rates, though most mortgages tend to have fixed rates.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
Internal Revenue Service, “Publication 936 (2025), Home Mortgage Interest Deduction.” Accessed Jan. 29, 2026.
