A Home Equity Line of Credit (HELOC) is a revolving credit line secured by your home's equity. Unlike a traditional loan, you only borrow what you need, when you need it — up to your approved credit limit. HELOCs typically have two phases: a draw period (usually 5–10 years) during which you can borrow and make interest-only payments, and a repayment period (typically 10–20 years) during which you repay both principal and interest.
During the draw period, your HELOC functions like a credit card backed by your home. You can draw funds as needed, repay them, and draw again. Most lenders require only interest payments during this phase, keeping monthly costs low. When the draw period ends, the outstanding balance converts to a fully amortizing loan — your monthly payment rises to cover both principal and interest over the repayment period.
| Feature |
HELOC |
Home Equity Loan |
| Interest Rate | Variable | Fixed |
| Disbursement | Revolving credit line | Lump sum |
| Payment during draw | Interest only | N/A (immediate repayment) |
| Best for | Ongoing expenses | One-time expenses |
| Payment predictability | Low (variable) | High (fixed) |
Most lenders cap your total home debt at 80% of your home's value (combined loan-to-value, or CLTV). The formula is:
Maximum Credit Limit = Home Value × 80% − Existing Mortgage Balance
Example: $400,000 home × 80% − $200,000 mortgage = $120,000 available credit. Some lenders go up to 85% or 90% CLTV for well-qualified borrowers, though rates are typically higher.
Is HELOC interest tax deductible?
HELOC interest is deductible when the funds are used to buy, build, or substantially improve your home under the Tax Cuts and Jobs Act. Interest used for other purposes (e.g., paying off credit cards, tuition) is generally not deductible. Always consult a tax professional for your specific situation.
What is the current HELOC rate?
HELOC rates are variable and typically tied to the U.S. Prime Rate plus a margin. Your specific rate depends on your credit score, loan-to-value ratio, and lender.
Can I pay off my HELOC early?
Yes. Most HELOCs have no prepayment penalty. Making extra principal payments during the draw period can significantly reduce your total interest cost and shorten your repayment period.
What credit score do I need for a HELOC?
Most lenders require a minimum credit score of 620–640. To qualify for the best rates, a score of 720 or higher is typically needed. Lenders also consider your debt-to-income ratio and home equity.