A standard secured loan typically carries a lower interest rate than a HELOC, but a HELOC charges interest only on the amount drawn at any point. If the borrower draws gradually over the draw period rather than taking the full amount on day one, the HELOC can cost less in total interest despite the higher rate. Whether it does depends on the rate gap between the two products. This comparator models both side by side so the borrower can see which is cheaper at their specific quoted rates.
At a Glance
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Enter the amount, both quoted rates, the draw period, and the total term. The tool calculates total interest for a standard secured loan and for a HELOC with gradual draws, and shows which costs less.
Both rates start at 6% by default. Adjust each slider to reflect the rates you have been quoted (or are researching). The secured loan rate is typically lower because first and second charge lump-sum products carry less risk from the lender’s perspective. The HELOC rate is typically higher but interest accrues on a lower average balance when funds are drawn gradually.
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The HELOC can be cheaper even at a higher rate, but only if the rate gap is small enough. For a five-year draw period on a twenty-year term, the break-even gap is approximately 0.35 to 0.4 percentage points.
Below that gap, the gradual draw saving outweighs the higher rate. Above it, the rate difference is too large and the standard loan costs less in total. The break-even gap is narrower than many borrowers expect because the HELOC borrower pays interest only during the draw period (no capital repayment), while the standard loan borrower is repaying capital from day one. The tool shows the exact comparison at whatever rates you enter.
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Total interest is not the only factor. The HELOC offers lower payments during the draw period, revolving access, and no early repayment charges on current UK products. The standard loan offers certainty, a fixed rate option, and no temptation to redraw.
Even when the standard loan costs less in total interest, the HELOC may be the better fit if the borrower needs funds in stages, wants the option to repay and refinance freely, or values lower payments during the early years. The guide to home equity loan vs HELOC covers the structural differences beyond cost.
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This tool excludes fees. HELOC fees (lender plus broker) are typically higher than standard secured loan fees, which narrows the HELOC’s advantage where it exists.
Fees should be added to the interest comparison for a complete cost picture. The guide to HELOC fees and costs covers the full fee breakdown. The APRC (which includes lender fees) is the most reliable single metric for comparing total cost across products.
HELOC vs lump sum loan: total interest comparison
Illustrative figures only. Excludes fees. Not a quote or offer.
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Adjust the rates to see which option costs less at your quoted figures
All figures are illustrative and simplified. Standard secured loan uses capital-plus-interest from day one. HELOC uses interest-only during the draw period and capital-plus-interest during the repayment period. HELOC gradual draw assumes equal monthly draws spread evenly over the draw period. Fees (lender and broker fees for both products) are excluded and would affect the total cost comparison. This tool does not constitute a quote, offer, or financial advice.
About this tool
What it compares
Total interest on the same amount borrowed through two different products
The left panel shows a standard secured loan where the full amount is received on day one at the loan rate, with capital-plus-interest repayments from the start. The right panel shows a HELOC where the same amount is drawn gradually over the draw period at the HELOC rate, with interest-only payments during the draw period and capital-plus-interest during the repayment period. The verdict shows which costs less in total interest at the rates entered, and by how much.
What it does not include
Fees, ERCs, and structural advantages beyond interest cost
The comparison is interest only. HELOC fees (lender plus broker) are typically higher than standard secured loan fees. Standard secured loans may carry early repayment charges during a fixed-rate period, which the HELOC does not. These factors affect the total cost comparison and should be considered alongside the interest figures. The guide to HELOC fees and costs covers the full fee breakdown.
How to use this tool
Set the amount and term
Enter the total amount you need to borrow and the term over which you would repay it. Both products are compared on the same amount and the same total term to ensure a like-for-like comparison.
Enter the rates you have been quoted (or are researching)
Set the secured loan rate and the HELOC rate independently. Both start at 6% by default. Adjust each to reflect the rates you have been quoted or the rates you expect based on your LTV and credit profile. The guide to HELOC rates in the UK includes illustrative rate bands.
Set the draw period
This is the period over which the HELOC funds are drawn gradually (two to five years in the UK). A longer draw period increases the gradual draw saving because the average balance stays lower for longer. The standard loan has no draw period because the full amount is received on day one.
Read the verdict
The verdict panel shows which product costs less in total interest at the rates entered. If the HELOC wins, the gradual draw saving has offset the higher rate. If the loan wins, the rate gap is too large for the drawdown pattern to overcome. Try adjusting the rates to see where the break-even point sits for your amount and term.
Understanding the results
The comparison hinges on the rate gap between the two products. At equal rates, the HELOC always costs less because the gradual draw reduces the average balance and therefore the total interest. As the HELOC rate increases above the loan rate, the rate difference starts to erode the gradual draw advantage. At a certain gap, the advantage is fully offset and the loan becomes cheaper. Beyond that point, the loan wins by an increasing margin.
For a £50,000 borrowing over 20 years with a 5-year draw period, the break-even gap is approximately 0.35 to 0.4 percentage points. If the loan rate is 6% and the HELOC rate is 6.3%, the HELOC is marginally cheaper. If the HELOC rate is 8.5%, the loan is cheaper by a significant margin. The break-even is narrower than many borrowers expect because the HELOC charges interest only during the draw period (no capital repayment), while the standard loan repays capital from day one. The exact break-even depends on the amount, the draw period, and the total term.
The tool also highlights the monthly payment difference during the draw period. In year one of a gradual draw, the HELOC payment is a fraction of the loan payment because only a small portion of the total has been drawn. This cash flow advantage can matter for borrowers who need lower payments in the early stages (for example, during a home improvement project or the early years of school fee payments). The guide to using a HELOC for home improvements and the guide to using a HELOC for school fees cover these use cases in detail.
Beyond total interest: when the HELOC wins on structure
Total interest is the most visible cost, but it is not the only factor in the decision. Several structural advantages of a HELOC can make it the better choice even when the standard loan costs less in interest. The HELOC products currently available in the UK carry no early repayment charges, which means the borrower can repay in full at any time without penalty. A standard secured loan on a fixed rate typically carries ERCs during the fixed period, which can amount to several thousand pounds if the borrower repays early. For a borrower who expects to remortgage or repay within two to three years, the absence of ERCs on the HELOC may save more than the interest difference.
Revolving access during the draw period is a feature the standard loan does not offer. If the borrower repays part of the HELOC balance, that capacity becomes available again for future draws. A standard loan provides a fixed amount at completion with no ability to redraw. For projects where the total cost is uncertain or where the borrower wants a contingency facility alongside the main borrowing, the revolving structure provides practical flexibility that a lump sum cannot replicate. The trade-off is that revolving access creates a risk of redrawing for purposes beyond the original need, which adds secured debt without adding value. The guide to HELOC risks explained covers this behavioural risk.
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Checking won’t harm your credit scoreFrequently asked questions
Why does the HELOC sometimes cost less despite a higher rate?
Because the HELOC charges interest on the drawn balance, not the full facility. When funds are drawn gradually, the average balance during the draw period is much lower than the total amount. On a £50,000 facility drawn evenly over five years, the average balance during the draw period is approximately £25,000. Interest at a higher rate on £25,000 can be less than interest at a lower rate on £50,000, provided the rate gap is small enough.
The break-even gap depends on the draw period and the total term. For a five-year draw period on a twenty-year term, the gap is approximately 0.35 to 0.4 percentage points. For a two-year draw period on the same term, it narrows to approximately 0.1 percentage points. The break-even is narrower than under a capital-plus-interest draw period model because the HELOC borrower does not repay any capital during the interest-only draw phase, while the standard loan borrower repays capital from day one. The tool shows the exact comparison at whatever rates are entered.
Once the draw period ends and the full amount has been drawn, the rate advantage belongs to the lower-rate product for the remainder of the term. The gradual draw saving is earned entirely during the draw period and must be large enough to offset the higher rate for the entire repayment period that follows. This is why the rate gap matters so much: a small gap can be overcome, but a large gap cannot.
Does this tool account for fees?
No. The comparison shows interest only. HELOC fees, including the lender product fee (typically 2.0% to 2.6% of the facility amount, capped), the lender arrangement fee (typically 6.7% to 7.8%, capped at £3,000), and any broker fee (typically 5% to over 10% of the facility amount), are excluded. Standard secured loan fees are also excluded (typically an arrangement fee of £500 to £1,500 plus legal and valuation costs).
HELOC fees are generally higher than standard secured loan fees, which means including fees would narrow the HELOC’s advantage in scenarios where it wins on interest, and widen the loan’s advantage in scenarios where the loan wins. For a complete comparison, the fee totals should be added to the interest figures from this tool. The guide to HELOC fees and costs covers every fee category.
The APRC (annual percentage rate of charge) includes lender fees and provides a more complete comparison than the headline rate alone. However, HELOC broker fees may not be captured in the APRC, so the total cost across different brokers should still be compared separately. The guide to APR on secured loans explains how APRC calculations work.
What if I need the full amount on day one?
If the full amount is needed immediately (for example, to fund a single purchase or to consolidate debts in one transaction), the HELOC’s gradual draw advantage does not apply. The borrower draws the full facility at completion and interest accrues on the full amount from that point, just as it would on a standard loan. In this scenario, the lower-rate product is always cheaper on interest, and the standard secured loan will win unless both rates are identical.
A borrower who needs the full amount on day one may still prefer a HELOC for other reasons: the absence of early repayment charges means they can repay and refinance freely, and if they repay part of the balance during the draw period, that capacity becomes available for future draws. But on a pure interest comparison, the lower-rate lump-sum product is the better value when the full amount is drawn immediately.
The HELOC repayment calculator shows the cost of drawing the full amount at once versus drawing gradually at the same rate, which isolates the drawdown pattern advantage without the complication of different rates. The guide to home equity loan vs HELOC covers the full structural comparison between the two product types.
Should I always choose the cheaper option?
Not necessarily. Total interest is one important factor, but the right choice depends on how the borrower plans to use the funds, whether the existing mortgage rate is worth preserving, and how much flexibility is needed. A HELOC that costs £3,000 more in total interest but offers the ability to repay freely, draw in stages, and refinance without ERCs may be worth the premium for borrowers who value those features.
The hidden cost of remortgaging is another factor that this tool does not capture. If the borrower is considering a remortgage (which would replace the existing mortgage entirely), the cost of moving the existing balance to a new rate must be factored in alongside the cost of the new borrowing. A HELOC avoids this hidden cost because it sits alongside the existing mortgage. The guide to HELOC vs remortgage covers this comparison with a worked example.
For borrowers whose only priority is minimising total cost and who need the full amount on day one, the lower-rate product is the clear choice. For borrowers who need phased drawdown, want revolving access, or want to preserve a favourable existing mortgage rate, the structural advantages of a HELOC may justify a higher total interest cost.
How do I find out the actual rates for my situation?
The rates available depend on the property, the borrower’s income and credit profile, and the combined LTV. For standard secured loans, rates vary by lender, LTV tier, and whether the product is fixed or variable. For HELOCs, rates are typically variable and linked to the Bank of England base rate, with the margin depending on the LTV tier. The guide to HELOC rates in the UK includes illustrative rate bands by LTV.
A broker who works across both product types can provide indicative rates for both options based on the borrower’s specific circumstances, which can then be entered into this tool for a personalised comparison. The rates entered into this tool do not need to be exact at the planning stage. Trying several combinations (for example, loan at 5% to 7% and HELOC at 7% to 10%) shows how sensitive the comparison is to the rate gap, which helps with planning even before firm quotes are obtained.
The actual rate offered is confirmed during the application process and will depend on the full underwriting assessment. The illustrative rates used in this tool are for planning purposes only and do not represent a specific product offer. The guide to HELOC eligibility covers the factors that influence the rate offered.
Squaring Up
On total interest alone, a standard secured loan at a lower rate will usually beat a HELOC at a higher rate. But the HELOC can be cheaper when the rate gap is small enough for the gradual draw saving to offset the higher rate, which typically occurs at gaps below approximately one percentage point. Beyond total interest, the HELOC offers structural advantages that a lump-sum loan does not: no early repayment charges, revolving access during the draw period, and the ability to draw in stages with interest only on the amount drawn.
The right choice depends on the rate gap, the drawdown pattern, and how much the borrower values flexibility versus minimising total interest. Entering the specific rates you have been quoted into this tool gives a personalised comparison rather than a generic answer.
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Checking won’t harm your credit score Check eligibilityThis tool is for illustrative purposes only and does not constitute financial advice, a quote, or an offer. Your home may be at risk if you do not keep up repayments on a mortgage or other debt secured against it. The figures shown exclude fees (lender and broker fees for both products) which form a material part of the total cost. Interest rates are illustrative; most UK HELOCs carry variable rates that can change during the term. The comparison assumes the HELOC is drawn gradually in equal monthly amounts over the draw period. Actual costs depend on the specific products, rates, fees, drawdown pattern, and individual circumstances.
