Home Equity
A home equity line of credit (HELOC) is a revolving credit line secured by the equity in your home. Think of it like a credit card attached to your house — you have a total approved line, you draw from it as needed during the “draw period” (typically 10 years), you pay interest only on what you’ve actually borrowed, and you can repay and re-borrow within that window. After the draw period ends, the line converts to a “repayment period” (typically 15–20 years) where you pay down principal and interest on the outstanding balance. HELOC rates are variable — almost always tied to the Prime rate plus a margin — which is the single biggest difference from a cash-out refinance. That variability is both the advantage (you don’t touch your existing first-mortgage rate) and the risk (your payment changes as Prime moves). HELOCs work best for ongoing needs with uncertain total draw amount: home renovations, education expenses, emergency reserves, or bridge financing before a sale.
A HELOC gives you a line of credit secured by your home’s equity. You can draw from it, repay it, and draw again during the draw period — much like a credit card.
HELOCs can sit behind your existing first mortgage (second lien, most common) or replace it entirely (first lien). Each has different terms and tradeoffs.
Draw period is typically 10 years with interest-only payment options; repayment period typically runs 15–20 years after that, with fully amortizing payments on the outstanding balance.
Rates are almost always variable — tied to the Prime rate plus a margin (e.g., Prime + 0.5%). As Prime moves, your rate and payment move with it.
Most lenders let you draw up to 85% combined loan-to-value (first mortgage + HELOC), though some programs reach 90% for strong credit profiles.
Occupancy type affects borrowing capacity and pricing — primary residence HELOCs typically offer the highest limits and lowest rates; investment HELOCs are tighter on both.
Refinanced to 3% in 2020–21 and doesn’t want to give that rate up. A HELOC sits behind the first mortgage, preserving the low rate while still accessing equity for renovations or other needs.
Kitchen remodel projected at $80k but with uncertain final cost. HELOC draws funds only as contractors bill, so you only pay interest on actual spend — not the full approved line.
Want to put 20% down on a new home and sell the current one after moving. A HELOC on the current home provides the down payment. HELOC pays off from sale proceeds.
Wants access to $100k+ in emergency funds without tying up savings. HELOC approval is free until you draw — no interest accrues on an unused line.
Investment HELOCs are rarer and pricier than primary-home HELOCs, but some programs allow draws up to 70% combined LTV to fund additional acquisitions.
Home value $600k; existing first mortgage $300k → $300k in equity. HELOC approved for $150k at Prime + 0.5% (current rate ~9%). During the draw period, interest-only payments on outstanding balance. If you draw $80k, monthly interest-only payment is about $600 until you choose to pay down principal.
Pays off existing first mortgage at close, replacing it with a single revolving line. Higher approved amount than second-lien HELOC because it’s the only lien. Rate slightly lower than second-lien pricing. Works well when the existing first mortgage rate is no longer favorable.
Draw $120k from HELOC to fund down payment on new home. Sell current home 60 days later; pay HELOC down to zero from sale proceeds. Total interest cost roughly $1,800 at 9% over 60 days — cheaper than most bridge loan structures.
Example figures use illustrative rates and are for educational purposes only. Actual rates, terms, and costs depend on credit profile, market conditions, and property specifics.
Cash-out replaces your entire first mortgage with a new, larger one — and you get the cash difference. If your existing rate is low, that’s a big cost. HELOC leaves your first mortgage untouched but carries a variable rate. Use the HELOC vs. cash-out comparison calculator to see which costs less over your expected hold period.
A home equity loan is a fixed-rate lump-sum second mortgage with fixed monthly payments. HELOC is a variable-rate revolving line with interest-only draw-period payments. Use home equity loan when you need a known lump sum; HELOC when you need flexible or ongoing access.
Personal loans are unsecured, usually 8–15% APR, with fixed payments and no collateral risk. HELOC is secured by your home, typically cheaper in rate, but puts your house at risk if you default. Choose personal when you want speed and don’t want collateral involvement.
Credit cards are the most expensive form of revolving credit (usually 20%+ APR). HELOC is secured by your home and 10%+ cheaper on interest. Use credit cards only for short-term, small-ticket expenses.
Explore the programs helocs — tap home equity, pay only what you use are most often compared against, plus the Home Equity hub for the full lineup and today's mortgage rates for current pricing context.
A second lien HELOC sits behind your existing mortgage — you keep your current first loan in place. A first lien HELOC replaces your existing mortgage entirely and becomes your primary lien. The right choice depends on your rate, equity, and goals.
Yes, though the requirements are typically more stringent than on a primary home. Expect lower borrowing limits and stricter qualifying.
During the draw period, you can pull funds as needed — up to your credit limit. You only pay interest on what you’ve actually borrowed, not the full line amount.
After the draw period (typically 10 years), the HELOC converts to the repayment period (typically 15–20 years). You can no longer draw from the line, and your monthly payment becomes a fully amortizing principal-and-interest payment on the outstanding balance.
Most lenders allow up to 85% combined loan-to-value (first mortgage + HELOC). For a $600k home with a $300k first mortgage, that’s up to $210k in HELOC availability (85% × $600k = $510k total; minus $300k first mortgage = $210k).
Almost always variable — priced as Prime rate plus a margin (e.g., Prime + 0.5%). As Prime moves, your rate and payment move with it. A small number of programs offer fixed-rate conversion options on a portion of the balance.
Interest is generally deductible if the HELOC proceeds are used to buy, build, or substantially improve the home securing the loan, subject to IRS limits. Interest on HELOC funds used for other purposes (debt consolidation, education, investments) is generally not deductible. Consult your CPA for your specific situation.
Typically 2–6 weeks — much faster than a full cash-out refinance. Some lenders offer “fast-close” HELOC programs that close in as little as 5–10 days for strong-credit borrowers.
The hard credit inquiry at application slightly affects your score short-term. Once open, the HELOC is reported to the credit bureaus and affects your utilization ratio — drawing heavily against the line can lower your score. Paying the line down improves it.
Most HELOCs have no prepayment penalty. A few lenders charge an early closure fee if you close the line within the first 2–3 years, typically 1% of the line amount or a flat fee.
Before you apply, see equity access and draw-period payments in the HELOC calculator — it estimates your line amount, interest-only draw payments, and total interest cost. Not sure a HELOC beats a refi? compare a cash-out refinance in the cash-out refinance calculator to see which path keeps more of your equity and rate intact.