What a HELOC is
A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home, similar to a credit card but with much lower rates because it's collateralized.
You're approved for a maximum credit limit (based on your home equity), and you can borrow against it as needed during a draw period — typically 10 years. After that, you enter a repayment period (usually 20 years) where you pay back the principal plus interest.
HELOC vs. cash-out refinance
Both let you tap home equity. The key differences:
- Cash-out refinance replaces your current mortgage with a new, larger one. You get cash at closing. Best when current rates are similar to or lower than your existing rate.
- HELOC sits as a second loan on top of your existing mortgage. You keep your original first mortgage rate intact. Best when current rates are higher than your existing rate, or when you want flexibility to draw funds over time rather than taking it all at once.
If you locked a sub-4% mortgage rate during the 2020-2021 era and don't want to touch it, a HELOC is usually the better path to access equity.
How HELOC rates work
Most HELOCs have variable rates tied to the Prime Rate plus a margin. As Prime moves, your HELOC rate moves with it. This means your payment can rise or fall over time.
Some lenders offer fixed-rate HELOC options, where you can lock in a portion of the balance at a fixed rate while keeping the rest variable.
How much you can borrow
Most lenders cap combined loan-to-value (CLTV) — the total of your first mortgage and HELOC divided by your home's value — at 80–90%.
Example: home worth $500,000 with a $300,000 first mortgage. At 85% CLTV, your max combined balance is $425,000, which means a HELOC up to $125,000.
Common HELOC uses
- Home renovations that increase home value.
- Debt consolidation — rolling high-rate credit card or personal loan debt into a much lower HELOC rate.
- Education expenses.
- Emergency reserves — many homeowners open a HELOC just to have it available, even if they don't draw on it.
- Investment property down payments.
Things to weigh
- Variable rates can rise. Build buffer into your budget.
- Interest is tax-deductible only when used to buy, build, or substantially improve the home securing the HELOC. Other uses (debt consolidation, education) are not deductible.
- Your home is collateral. Default risks the home, same as a first mortgage.
- Closing costs are usually lower than a refinance — sometimes zero out of pocket.
Want to see what a HELOC could look like for your home?
Request a HELOC quote and we'll model your max draw, the rate, and the all-in cost.