One of the biggest financial advantages of homeownership is building equity over time. This equity can be used as collateral to access funds without selling your property. For homeowners looking to tap into this value, two popular borrowing options are a HELOC (Home Equity Line of Credit) and a Home Equity Loan.
Much like how businesses use a line of credit to handle cash flow or seize opportunities, individuals can use their home equity in similar ways. A HELOC acts like a credit card, offering a revolving credit limit, while a home equity loan provides a lump sum with fixed repayment terms.
If you’re unsure which option suits your needs better, this article breaks down the key differences between HELOC vs Home Equity Loan to help you make an informed choice.
What is HELOC?
As the name suggests, HELOC or home equity line of credit is a revolving credit line that gives an individual access to a pool of money. These loans are an excellent option to cover ongoing costs, and there are two phases involved—the drawing phase and the repayment phase.
Here, the borrower can draw for around ten years, and the lender has a credit line allowing them to borrow funds whenever the individual requires. The repayment phase is more extended and lasts between 10 and 20 years in most cases.
HELOCs share similarities with credit cards and equity loans. While the loan amount is dependent on the equity in the home of the individual, similar to how equity loans function, the forwarded amount is a revolving credit identical to how credit cards go about their business. The collateral here is the home, which means that if an individual misses repayment beyond a limit, the lender can attach the house to get their money back.
A HELOC inadvertently comes with a variable home loan interest rate. It means that the interest can change over the years, which affects the periodic amount due. An individual can find it inaccessible, but some lenders offer fixed HELOC interest rates, but it also depends on their creditworthiness, reputation, and the sum in contention.
If an individual is in the draw period, they are most likely to only repay the interest for that duration. However, as soon as the period expires, the repayment amount grows significantly, including the interest.
Let us consider an example:
Mr. Y has a home with an appraised value of Rs. 40 lakh and has a pending home loan amount of INR 10 lakh. He has applied for a HELOC with the said home as collateral. The lender approves the loan to the tune of 60% of the home equity with a draw period of 10 years. It means that Mr. Y can withdraw a maximum of INR 18 lakh ((40-10) lakh x 60%) during the loan term.
Depending on the amount withdrawn and the date of withdrawal/s, the lender will levy interest on the amount forwarded.
What is Home Equity Loan?
A home equity loan is a fixed-term loan that a lender grant based on the value of the equity in the borrower’s home. Also referred to as second mortgages, it means that the borrower can borrow a certain percentage, usually limited to 85% of the difference between the value of the home and the outstanding loan balance against it.
The home equity loan offers the borrower a lump sum with a fixed interest rate. It also includes a schedule of fixed payments for the loan’s term.
Here, the individual’s equity in their home serves as collateral. Also known as a second mortgage, it only works if there is enough equity in the house. The loan amount is usually limited to a certain percentage, say 80% or 85% of the property’s appraised value, and is based on several factors. These factors comprise the CLTV (combined loan-to-value) ratio and the individual’s credit score and credit history.
In most cases, a home equity loan includes loan processing, loan origination, appraisal, and recording fees, with many lenders choosing to charge a nominal prepaid interest (1% or lower). In most cases, the interest rate is fixed and won’t change during the loan term. Also, equity loans are rigid with their repayments which are fixed and apportioned in equal amounts over the life of the loan.
Let us consider an example:
Mr. X has a home worth Rs. 30 lakh and borrowed Rs. 25 lakh as a home loan. The individual still owes Rs. 15 lakh, whereas the property value has appreciated to Rs. 34 lakh.
In this case, the home equity value would be Rs. 19 lakhs (34 lakh – 15 lakh).
HELOC vs Home Equity Loan (Table)
Documents Required for Home Equity Loan Approval in India
KYC Documents: Standard KYC papers such as Aadhaar card, PAN card, and Passport are required to verify identity and meet regulatory guidelines set by the Lender.
Address Proof: Documents like Aadhaar card, Passport, or recent utility bills help confirm current residential details and ensure accurate communication records.
Income Proof: Salaried applicants usually submit recent salary slips and income tax returns, while self employed individuals provide ITRs and profit and loss statements for the last two to three years. These documents help assess eligibility for equity home loans.
Bank Statements: Bank statements covering the last six to twelve months are reviewed to understand cash flow, existing obligations and repayment behaviour.
Property Documents: Sale agreement, allotment letter and related legal and technical papers are essential to verify ownership and property value.
Additional Verification: Recent photographs, signature proof and extra consent documents may be required, especially in the case of a HELOC loan, as it involves a revolving credit facility linked to property equity.
Here are the key differences between home equity loan vs line of credit:
Particulars
Home Equity Loan
HELOC
Interest rate
Fixed
Variable
Amount forwarded
Lump sum at the beginning
Line of credit
Repayment
Fixed repayments periodically
Amount changes over time
Repayment term
Starts as the lump sum is disbursed
Repayment is limited to interest-only during the draw period. Principal repayment starts in the repayment phase.
Best for
Lump sum capital needs (for example: starting a business)
Periodic cash requirement (for example: for managing the working capital needs of a business during an emergency)
Now that you are aware of differences between home equity loan vs line of credit, let us understand how to apply.
HELOC vs Home Equity Loan: Which is Better for Your Financial Goals?
Deciding between a home equity loan and a HELOC depends on how you plan to use the funds and manage repayments. Understanding the home equity loan vs HELOC differences can help align the choice with your financial goals and cash flow preferences.
Consider a home equity loan if:
You need a fixed lump sum for a specific, one time expense such as home renovation, medical costs or education fees.
You prefer repayment certainty through fixed interest rates and consistent monthly instalments.
You want clarity on the total borrowing cost from the beginning, making long term budgeting easier.
You do not anticipate needing additional funds once the loan amount is disbursed.
You value financial discipline and structured repayment over flexibility.
Consider a HELOC if:
You require access to funds over time rather than all at once, especially for phased projects.
You want flexibility similar to a credit facility, where borrowing happens as and when required through a HELOC loan.
You aim to reduce interest outgo by borrowing smaller amounts and repaying them quickly.
You are comfortable with variable interest rates and potential changes in repayments.
You want payment flexibility, including interest only payments during the initial draw period, which some equity home loans allow.
The right choice ultimately depends on financial stability, spending purpose and risk comfort.
Step-by-Step Application Process for Home Equity Loans in India
Applying for a home equity loan in India involves a structured application process designed to ensure clarity and financial discipline for borrowers. Outlined below is a step by step guide to completing the application.
Step 1: Complete the Application Form
Begin by filling out the home equity loan application form with personal, income and property related details. All information should match the supporting documents to avoid discrepancies.
Step 2: Attach Supporting Documents
Submit identity proof, income documents, recent bank statements and complete property papers along with the application. Proper documentation helps the lender initiate verification without delays.
Step 3: Share Property Information
Provide clear details about property ownership, location and any existing liabilities. This enables the lender to assess eligibility based on available home equity.
Step 4: Review and Final Submission
Recheck the application for accuracy and completeness before final submission. Correct details support faster processing and reduce follow up requirements.
Step 5: Acknowledgement from the Lender
Once submitted, the lender issues an acknowledgement and begins credit and property assessment as part of the approval workflow.
Once you’ve done a comparison of HELOC vs home equity loan for your specific needs, it’s time to begin the application process. Here’s a simplified five-step guide to help you through it:
Step 1: Review Lender Requirements: Before anything else, understand what your lender expects. Most lenders require that you maintain at least 15–20% equity in your home. Lenders will also evaluate your credit score, income, and existing debt obligations to ensure you’re financially stable enough to handle the loan.
Step 2: Gather Required Documents: To proceed smoothly, keep the following documents ready:
1. A valid government-issued ID (such as a driver’s licence, Aadhaar, or passport)
2. Income proof like salary slips, W2s, tax returns, or retirement income statements
3. Details of your current property expenses, including mortgage statements, property tax bills, and home insurance documents
Step 3: Fill Out the Application: Most lenders now offer a digital application process that is quick and user-friendly. This form collects essential details about your income, property, and loan requirements. Once submitted, the lender will assess your eligibility and loan amount.
Step 4: Get Your Home Appraised: A property appraisal determines your home’s current market value, which in turn affects how much equity you can borrow against. In many cases, a desktop appraisal (using online data and recent sales of similar homes) is sufficient, making the process faster and more convenient.
Step 5: Pay Closing Costs and Access Funds: Closing costs can be paid either upfront or added to your loan amount. Paying upfront helps you avoid extra interest, but if that’s a strain on your budget, rolling it into the loan is a common option. After closing, you’ll either get a lump sum (home equity loan) or access to a credit line (HELOC).
What is a good alternative to a HELOC or a home equity loan?
While HELOCs and home equity loans are good options for those looking to use their home equity as collateral, here are some options for those not willing to risk their homes for getting a loan sanctioned:
Personal line of credit
For all those looking for a HELOC alternative, a personal line of credit would serve their purpose right. Lenders offer it to people with good creditworthiness, and it is a revolving credit account that doesn’t have any collateral backing it. While these allow withdrawal similar to HELOCs, the repayment period is significantly shorter, sometimes a few months or up to five years.
Personal loan
An unsecured loan is similar to a home equity loan but without the home equity backing it. It is a collateral-free offering that carries a higher interest rate. The amount is paid upfront as a lump sum and depends on the individual’s creditworthiness and a fair to good credit score. While the loan period is shorter with a personal loan, the individual has the option to renew it periodically.
What are the requirements for a HELOC or a home equity loan?
Here are the criteria set by most lenders for approval of a HELOC or a home equity loan:
Fair to good credit score (preferably over 600)
Home equity of 20% or more
A history of stable and verifiable income
Credit Score Requirements for HELOCs in India
In India, qualifying for a HELOC loan requires lenders to assess your overall financial profile rather than rely on a single rule. Most lenders expect you to have a reasonable credit history and a score that reflects low risk, often in the mid-600s or above, to improve your chances of approval and obtain favourable terms. A stronger credit score typically signals reliability to the lender and can influence both approval and interest conditions.
Alongside credit score evaluation, lenders will review your stable income, manageable debt levels and sufficient home equity, similar to the criteria for equity home loans. Having equity of at least 15 to 20 per cent of your property’s value and a track record of responsible credit use can make your application more competitive.
How to choose between a HELOC and a home equity loan?
Now that an individual understands the pros and cons of both the options and how they function, it is vital to make the right choice for their specific use case.
Here are the situations when a home equity loans would suit them better:
1.If the individual requires a lump sum upfront for any specific need
2. If they prefer a fixed-interest loan
3. If the individual requires a precise sum to borrow
4. If they have a good credit score and can secure a loan at a lower interest rate
Here is when a HELOC is more likely to suffice:
The individual requires frequent small forwarding instead of having to settle a lump sum upfront
They have no idea of the total loan amount they would require over time
If the individual has a strong credit profile, preferably a credit score over 680
If the individual needs a low-interest loan against their home equity
Conclusion
HELOCs and home equity loans are terrific options for those willing to use their home equity as loan collateral. Unfortunately, with the recent pandemic incursions, some lenders have tightened their qualifications, which has meant that these loans are harder to come by.
When choosing between a home equity line of credit vs loan on home equity, there are clear advantages for each. These cater to specific use cases and are an excellent second loan option. So, whether an individual is looking to renovate their home or improve it, these options suffice.
If an individual is short of funds or cannot get any of these loans approved, Tata Capital is there for all loan-based needs. Avail a home loan anywhere between Rs. 5 lakhs and Rs. 5 crores with us at the most reasonable interest rates.
Plus, we offer tailor-made options for helping individuals purchase or construct a home with the ability to choose EMIs at their convenience. Check your home loan eligibility criteria and home loan EMI with our calculators.
Click Now to learn more about Tata Capital Home Loan.
Can I switch from HELOC Credit Line to a fixed-rate loan?
Yes, many lenders allow conversion of all or part of your HELOC balance to a fixed-rate loan, offering rate stability and predictable monthly payments.
What happens if I can't repay my home equity line?
Failure to repay your HELOC can lead to penalties, damaged credit, and potentially foreclosure, as your home is used as collateral for the borrowed amount.
In fixed-rate vs HELOC, when should I choose HELOC?
Choose a HELOC when you need flexible access to funds over time, especially for ongoing expenses like renovations, rather than a one-time large expense.
How long do I have before I need to start repaying my HELOC taken amount?
Most HELOCs have a draw period of 5–10 years during which you pay interest only; repayment of principal usually begins after this period ends.
What is the main difference between a Home Equity Loan and a HELOC in India?
The primary differences between a home equity loan vs nd HELOC lie in structure and repayment. A home equity loan offers a fixed lump sum with a fixed interest rate, while a HELOC provides a revolving line of credit, allowing flexible withdrawals and interest paid only on the drawn amount, making it ideal for variable expenses.
Can I get a HELOC with a low credit score in India?
Obtaining a HELOC loan with a low credit score in India can be difficult. Lenders prefer borrowers with strong credit history. However, applicants with significant home equity or stable income may be considered, though they may face higher interest rates and stricter lending terms compared to those with better credit.
Are Home Equity Loan interest payments tax-deductible in India?
Interest on equity home loans in India is often tax-deductible under Section 24 (b) if used for property purchase, construction, or improvement. Understanding home equity loan vs HELOC differences is essential, as HELOC interest may not always qualify for similar deductions, making proper planning important for financial and tax efficiency.
How long is the draw period for a HELOC in India?
A typical HELOC loan in India comes with a draw period of five to ten years. During this time, borrowers can withdraw funds up to the approved limit and pay interest only on the utilised amount. After the draw period ends, principal repayment begins, increasing monthly obligations.
What happens if I miss a payment on my Home Equity Loan?
Missing a payment on an equity home loan can affect your credit score and result in late fees. Lenders may issue notices or initiate recovery measures for prolonged defaults. Timely communication with the lender is advised to explore repayment alternatives and avoid long-term financial consequences.
19 December 2025
14 mins read
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