A HELOC is a revolving line of credit secured by the equity in your home. During the draw period (commonly about 10 years) you borrow what you need and usually pay interest only; during the repayment period (commonly about 20 years) you pay back principal and interest. Most HELOCs carry a variable rate, and lenders typically let you borrow up to about 80 to 90 percent of your home value minus what you still owe.
What Is a HELOC?
A home equity line of credit, or HELOC, lets you borrow against the equity in your home as a revolving credit line — much like a credit card, but secured by your house. You are approved for a maximum limit and draw only the amount you need, when you need it, paying interest on the balance you actually use.
Because the loan is secured by your home, rates are usually lower than unsecured credit, but the stakes are higher: if you cannot repay, the lender can foreclose. A HELOC keeps your existing first mortgage in place, which is why it appeals to homeowners who already have a low rate they do not want to refinance away. For a quick definition, see our HELOC glossary entry.
HELOC vs. Home Equity Loan
| Feature | HELOC | Home equity loan |
|---|---|---|
| How you receive funds | Revolving line, draw as needed | One lump sum upfront |
| Interest rate | Usually variable | Usually fixed |
| Payment during draw | Often interest-only | Fixed principal and interest from day one |
| Best for | Ongoing or uncertain costs | A single known expense |
| Lien position | Second lien (first mortgage stays) | Second lien (first mortgage stays) |
Both are second mortgages that leave your first mortgage untouched. The split comes down to flexibility (HELOC) versus payment certainty (home equity loan). Our home equity loan glossary entry covers the lump-sum option in more detail.
HELOC Borrowing Power Estimator
How much you can draw depends on your combined loan-to-value (CLTV) — your first mortgage plus the new line, divided by your home value. The table below estimates the line a homeowner could reach at three common CLTV caps, assuming you still owe 50 percent of your home value on a first mortgage. It is illustrative, not a quote: your real limit depends on the lender, your credit, and your income.
| Home value | 1st mortgage balance (50% LTV) | HELOC at 80% CLTV1 | HELOC at 85% CLTV1 | HELOC at 90% CLTV1 |
|---|---|---|---|---|
| $300,000 | $150,000 | about $90,000 | about $105,000 | about $120,000 |
| $400,000 | $200,000 | about $120,000 | about $140,000 | about $160,000 |
| $600,000 | $300,000 | about $180,000 | about $210,000 | about $240,000 |
1 Available credit line before lender fees, subject to credit and income approval. The maximum CLTV a lender allows varies; many cap HELOCs near 80 to 85 percent, while some go to 90 percent for strong borrowers. The more equity you hold (the lower your starting LTV), the larger the line.
How the Draw Period and Repayment Period Work
A HELOC runs in two phases. During the draw period — commonly about 10 years — you can borrow, repay, and borrow again up to your limit, and many lenders require only interest payments on what you have drawn. When the draw period ends, the repayment period begins — commonly about 20 years — and you can no longer draw; instead you repay the outstanding balance as principal plus interest.
The shift between phases is the part borrowers most often underestimate. Moving from interest-only to full principal-and-interest, sometimes alongside a variable rate that has risen, can raise your monthly payment substantially. Plan for that step-up before you draw heavily, and ask your lender whether a fixed-rate conversion option is available.
HELOC Requirements
Lenders weigh three things: your equity, your credit, and your ability to repay. Exact cutoffs vary, but in general you can expect to need:
- Enough equity. Most lenders want your combined loan-to-value at or below about 80 to 85 percent, so meaningful equity beyond your first mortgage is essential.
- Solid credit. Many lenders look for a credit score in the mid-600s or higher, with the best terms reserved for stronger scores.
- Documented income and manageable debt. Lenders check your debt-to-income ratio to confirm you can handle the new payment, including the higher repayment-period amount.
Is HELOC Interest Tax-Deductible?
Sometimes. Under current IRS rules, interest on a HELOC or home equity loan is deductible only if you use the funds to buy, build, or substantially improve the home that secures the loan, and only within the overall mortgage-debt limit of $750,000 ($375,000 if married filing separately) for loans taken out after December 15, 2017. Interest on funds used for other purposes — paying off cards, a car, tuition — is generally not deductible.
Tax situations vary, so confirm the current rules in IRS Publication 936 and with a tax professional before counting on a deduction.
HELOC Pros and Cons
- Pro: flexible, draw-as-needed access and interest only on what you use.
- Pro: keeps your existing first-mortgage rate intact.
- Pro: often lower rates than unsecured borrowing because your home is collateral.
- Con: usually a variable rate, so payments can rise.
- Con: the payment can jump when the repayment period begins.
- Con: your home is on the line — missed payments risk foreclosure.
How to Get a HELOC
- Estimate your equity. Subtract your first-mortgage balance from your home value to gauge how much room you have under an 80 to 90 percent CLTV cap.
- Check your credit and budget. Confirm your score and that you can absorb a higher payment when the repayment period starts.
- Compare lenders. Get quotes on the margin over the index, fees, the draw and repayment terms, and any fixed-rate conversion option.
- Apply and verify. Provide income and property documents; the lender orders an appraisal and reviews your CLTV.
- Close and draw responsibly. Borrow only what you need and keep the repayment-period step-up in mind.
Explore Related Mortgage Topics
Compare a HELOC against the other ways to use your equity:
Frequently Asked Questions
How does a HELOC work?
A HELOC is a revolving line of credit secured by your home equity. During the draw period you borrow as needed and often pay interest only; during the repayment period you pay back principal and interest and can no longer draw.
How much can you borrow with a HELOC?
Most lenders let you borrow up to about 80 to 90 percent of your home value minus your first-mortgage balance. The more equity you have, the larger the line you can qualify for.
What is the difference between a HELOC and a home equity loan?
A HELOC is a revolving line with a usually variable rate that you draw from as needed. A home equity loan gives you a single lump sum at a usually fixed rate that you repay on a set schedule.
Is HELOC interest tax-deductible?
Only if you use the funds to buy, build, or substantially improve the home that secures the loan, within the mortgage-debt limit. Interest on funds used for other purposes is generally not deductible. See IRS Publication 936.
What credit score do you need for a HELOC?
Requirements vary by lender, but many look for a score in the mid-600s or higher, along with enough equity and a manageable debt-to-income ratio. Stronger scores earn better terms.
Can you lose your home with a HELOC?
Yes. A HELOC is secured by your home, so if you cannot repay what you borrow, the lender can foreclose. Borrow only what you can comfortably repay, including the higher repayment-period payment.
