HELOC Home Equity Line of Credit

How a HELOC works

A HELOC is a revolving line of credit secured by your home equity — similar in structure to a credit card, but with your home as collateral. You're approved for a maximum credit limit and can draw from it as needed during the draw period, typically 10 years. You only pay interest on what you've drawn, not the full credit limit.

After the draw period ends, the repayment period begins — typically 20 years. During repayment, you can no longer draw funds and must pay both principal and interest on the outstanding balance.

HELOC rates

Most HELOCs have variable interest rates tied to the prime rate. When the prime rate rises, your HELOC rate rises with it. This is a meaningful risk in a rising-rate environment — your payment can increase significantly if rates move up.

Some lenders offer fixed-rate HELOC options or allow you to lock a portion of the balance at a fixed rate. These products provide more payment predictability but may carry higher initial rates.

LTV limits and qualification

Most lenders allow a combined loan-to-value (CLTV) of 80–90% for a HELOC. This means your first mortgage plus the HELOC credit limit can't exceed 80–90% of the home's appraised value.

Qualification requires a credit review, income verification, and typically an appraisal or automated valuation. Minimum credit scores are generally 620–680 depending on the lender.

HELOC vs. cash-out refinance vs. home equity loan

• HELOC: Best for ongoing or uncertain expenses. Flexible access, variable rate, doesn't affect your first mortgage.
• Cash-out refinance: Best when current rates are near or below your existing rate and you need a large lump sum. Replaces your first mortgage entirely.
• Home equity loan: Best for a specific lump sum at a fixed rate. Predictable payments, second mortgage.