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A HELOC lets you tap your home’s equity like a credit card — draw what you need, pay interest only on what you use. It is one of the lowest-cost borrowing tools available to homeowners.
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What Is a HELOC?
HELOC stands for Home Equity Line of Credit. It is a revolving credit line backed by the equity in your home — the difference between your home’s value and what you owe.
Example: Home worth $400,000, mortgage balance $250,000, equity = $150,000. With an 80% LTV limit, you could access up to $70,000 in a HELOC.
How a HELOC Works
Two phases:
- Draw period (typically 10 years): Borrow up to your limit. Minimum payments are usually interest-only.
- Repayment period (typically 20 years): No more draws. Repay principal + interest — payments increase significantly.
HELOC vs Home Equity Loan
| Feature | HELOC | Home Equity Loan |
|---|---|---|
| Structure | Revolving credit line | Lump sum |
| Rate type | Variable | Fixed |
| Draw as needed? | Yes | No |
| Best for | Ongoing or uncertain expenses | One-time large expense |
| Payment predictability | Low | High |
HELOC Rates in 2026
HELOC rates are tied to the Wall Street Journal Prime Rate. In May 2026, prime is approximately 7.5%, and HELOC rates range from 8% to 11% depending on creditworthiness, LTV, and lender.
Tax Deductibility
HELOC interest is tax-deductible only if the funds are used to buy, build, or substantially improve the home securing the loan. Debt consolidation, vacations, or other purposes do not qualify.
Risks to Understand
- Your home is collateral. Cannot repay = foreclosure risk.
- Variable rates can rise. Prime rate increases push your payment higher.
- Payment shock at repayment period. Interest-only draw payments become much larger principal+interest payments.
- Lender can freeze or reduce your line if your home value drops or financial situation changes.
How to Apply
- Calculate available equity at 80% LTV
- Compare lenders — banks, credit unions, online lenders
- Gather income docs, mortgage statement, property tax records
- Get an appraisal
Frequently Asked Questions
What is a HELOC?
A revolving credit line secured by your home equity. Draw as needed, pay interest only on what you borrow.
HELOC vs home equity loan?
HELOC: flexible, variable rate. Home equity loan: fixed lump sum, fixed rate. HELOCs for ongoing expenses; home equity loans for one-time purchases.
What credit score do I need?
Minimum 620; 740+ for best rates. Also need 15-20% equity and DTI under 43%.
What can I use it for?
Any purpose. Only tax-deductible if used for home improvement.
Variable or fixed rate?
Variable, tied to prime rate. Some lenders let you lock in fixed rate on portions of drawn balance.
Information as of May 2026. This is for educational purposes only and not personalized financial advice. Consult a licensed professional for your specific situation.