HELOC vs. Home Equity Loan: Accessing Cash in Retirement

It’s important to save wherever you can for retirement, but sometimes your biggest cash-out comes from your own home. According to the National Reverse Mortgage Lenders Association, senior-held home equity hit $14.66 trillion in the third quarter of 2025, even as retirees worry about covering their regular costs.

Tapping into your home’s equity can give you access to cash, but the type of borrowing you choose depends on your needs. WorkMoney breaks down the difference between a home equity loan and a home equity line of credit (HELOC) and how to figure out which one is right for you.

What's the Difference Between a HELOC and a Home Equity Loan?

Both a home equity loan and HELOC give you access to your home’s equity using your home as collateral, but they work in different ways. 

What is a HELOC?

A HELOC is a revolving line of credit, like a credit card. You’ll get approved for a credit limit up to a certain amount, allowing you to use funds as needed. 

You’ll be able to take out funds during the “draw” period, typically the first 10 years. During this time, you’ll only pay interest on what you’ve borrowed. Once the draw period ends, you’ll start the “repayment” period, which is when you’ll repay both the principal and interest. However, some HELOCs require monthly payments, so be sure to understand the repayment agreement.

What is a home equity loan?

A home equity loan is a lump-sum loan, similar to a personal or auto loan. There isn’t a separate “draw” or “repayment” period. Instead, you’ll get the entire amount at once, with a fixed interest rate and make the same monthly payments for the life of your loan. 

HELOC vs. home equity loan

How HELOCs and Home Equity Loans Impact a Fixed Retirement Income

If you’re living on a fixed income, it’s important to choose the right home equity product. 

Say you borrow $50,000. With a home equity loan at a fixed rate, your monthly payment stays the same for the life of the loan. You can build it into your budget and know it won't change.

With a HELOC, your payment during the draw period might be low because you're only paying interest. But when the repayment period begins, your payment can jump significantly, since you're now paying down principal too, and the rate itself may have moved up or down with the market. That kind of payment shock can be hard to absorb on a retirement income that isn't growing.

Keep in mind that lenders can freeze or reduce your HELOC credit line if your home's value drops or your financial situation changes, even if you've never missed a payment. You could lose a big financial safety net without warning, which could be a major setback for those counting on that credit line.

Why Retirees Consider Tapping Equity

Borrowing against what you already paid into your home can happen for any number of reasons: paying for a medical expense that insurance didn’t cover, home repairs or upgrades, or just having a little extra cash on hand just in case.

Instead of waiting for a crisis to arrive, having funds in advance lets you be proactive rather than reactive. Not everyone has enough money in reserves, so using home equity funds could be a good way to avoid a financial disaster.

What to Check Before You Borrow

Before you complete an application, research HELOCs and home equity loans so you know what to expect.

Know your payout

Your estimated amount and what you actually receive aren’t always the full number. With closing costs, fees, and other expenses, you could end up with much less than you anticipated. Ask your potential lender for a full breakdown of what you’ll receive, including the complete payout figure.

Test your budget

Take your monthly income and expenses, then add a hypothetical new loan payment into the mix. How does your budget look now? Walk through a few different “what if” scenarios to see what you could realistically afford. Use that as your guide for figuring out future HELOC or home equity loan payments.

Think beyond the loan

Consider how a new loan affects your entire setup, from monthly cash flow to your eligibility for assistance programs. You may want to talk with a tax professional or counselor to find out what a home equity loan or HELOC could do to your future, both the good and bad.

Home Equity Alternatives

While borrowing from your home’s equity is one option, it isn’t your only choice. Think about what you need money for and look into other options first before taking out a loan.

If rising housing costs are a problem, use the Housing Financial Assistance finder to find support that eases the burden. If high heating or cooling bills are part of what's pushing you toward a HELOC or home equity loan, the Low Income Home Energy Assistance Program (LIHEAP) offers help with utility costs and could free up cash you'd otherwise need to borrow.

If healthcare costs are the driving factor, CoverRight can help you navigate Medicare plan options to find coverage that lowers your out-of-pocket costs, which may reduce how much equity you need to access in the first place.

And if property taxes are a growing strain on your budget, Ownwell can help you challenge your home's tax appraisal, potentially lowering a recurring bill and easing the pressure that's pushing you toward a loan.

Getting necessary help from other sources can reduce how much you need to borrow through a loan or line of credit.