What is a HELOC?

A home equity line of credit is a revolving credit line secured by your home. You borrow what you need, when you need it, up to a limit set by your equity.

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How it works

1. Approval. The lender sets a limit from your home value, mortgage balance, credit and income.
2. Draw period. Usually 10 years. Borrow, repay and borrow again. Minimum payments are often interest only.
3. Repayment period. Usually 20 years. No new draws; the balance is paid off with principal and interest.
4. Secured by your home. It's a lien, usually second behind your mortgage, or first if the home is paid off.

How much you can borrow

Most lenders cap the combined loan-to-value at 80%–85%. Your income then has to support the payment. Try your numbers in the borrowing calculator.

How the rate is set

Your rate is the prime rate plus a margin. Prime moves with the Federal Reserve; it changed last on September 17, 2026. Your margin is set at closing from your credit score, loan-to-value and line size, and stays fixed for the life of the line. Many lenders let you lock part of the balance at a fixed rate. Typical margins today.

HELOC vs. home equity loan

Risks

• The home secures the line. Not paying can lead to foreclosure.
• Variable rates can rise, and the payment rises with them.
• The payment can jump when the draw period ends. See how much.
• Lenders can freeze or reduce an unused line if home values fall sharply or your finances change.

A HELOC from start to finish: one example

Here's how a typical line plays out over its life. A homeowner opens a $100,000 line at 7.75% APR.

1. Opening. The lender values the home, checks credit and income, and records a lien. After signing, there's a 3-business-day right to cancel on a primary home. Nothing is owed until money is drawn.
2. Year 1. She draws $40,000 for a kitchen. The interest-only payment is about $258 a month.
3. Year 2. She draws another $20,000 to pay off a car loan. The balance is $60,000; interest-only is about $388 a month.
4. Paying it down. Instead of the minimum, she pays $700 a month by autopay. The $60,000 is gone in about 10½ years, with about $27,700 in total interest, and she can draw again any time during the draw period.
5. If she had paid only interest. At the end of a 10-year draw, she'd still owe $60,000, and repaying it over 20 years would cost about $493 a month for two decades.

The same line can be a cheap, flexible tool or a 30-year debt. The payment you choose decides which.

Terms you'll see on an offer

• Credit limit: the most you can owe at once.
• Draw period: the years you can borrow, often 10. Repayment period: the years after that, often 20, when you can't draw and pay principal and interest.
• Index and margin: the rate is the index (usually the prime rate) plus a fixed margin set at opening.
• Rate cap: the highest rate the line can ever reach. Ask for it in writing. Caps and floors.
• Minimum draw: some lenders require an initial draw or a minimum per draw.
• Fixed-rate option: lets you lock part of the balance at a fixed rate. Fixed-rate HELOCs.
• Annual fee and early-closure fee: charges some lenders add.

The full list is in the HELOC glossary.

How you get the money

Depending on the lender: online transfers to your bank account, special checks, or a card tied to the line. Some newer HELOCs fund most of the line at closing and let you redraw as you pay it down. How to draw from a HELOC.

Who HELOCs work well for

• Homeowners with a low-rate first mortgage they don't want to refinance.
• Projects paid in stages, like renovations, or costs that arrive over time, like tuition.
• People replacing high-interest debt who will follow a payoff plan.
• People who want a backstop for large emergencies and won't use it for everyday spending.

Who should think twice

• Anyone whose income can't absorb a higher payment if rates rise or the draw period ends.
• People who plan to sell within a year or two (closing costs and early-closure fees may not pay off).
• Anyone tempted to use it for ongoing spending. When a HELOC is a bad idea.

More questions

Is a HELOC a second mortgage?

Usually, yes: it's a loan secured by your home that sits behind your first mortgage. On a home with no mortgage, it's in first position. More on lien position.

Do I have to use my whole HELOC line?

No, you don't have to draw your whole HELOC. Nothing is owed until money is drawn, so an unused line costs nothing apart from any annual fee the lender charges.

Can a lender take away my HELOC?

Only under specific conditions. A HELOC lender can freeze or reduce an unused line if home values fall sharply or your finances change. When a lender can freeze a line.

Related question: HELOC vs. mortgage

Related question: What can you use a HELOC for?

More in HELOC guides

• HELOC requirements
• When the draw period ends
• How HELOC interest is calculated
• HELOC pros and cons
• Is a HELOC a bad idea?
• How to get a HELOC
• Does a HELOC show on your credit report?
• Can a lender freeze your HELOC?

All HELOC guides →