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Compare Mortgage Rates
Rates shown are for illustration. Click to see actual rates from our partners.
| Lender | Rate (APR) | Monthly Payment | Fees | |
|---|---|---|---|---|
| A LendFirst Bank | 6.25% | $1,847 | $2,100 | View Offer |
| B QuickRate Financial | 6.50% | $1,896 | $1,800 | View Offer |
| C HomeSecure Lending | 6.75% | $1,946 | $1,500 | View Offer |
How a HELOC Works
A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home, functioning similarly to a credit card but with much lower interest rates. Your lender sets a credit limit based on your home equity, and you can borrow up to that limit as needed during the draw period. You only pay interest on the amount you actually borrow, not the full credit line, making HELOCs a flexible financing option for homeowners.
HELOC Draw Period vs Repayment Period
HELOCs have two distinct phases. The draw period, typically lasting 5-10 years, allows you to borrow funds and usually requires only interest-only payments. Once the draw period ends, the repayment period begins, lasting 10-20 years, during which you can no longer borrow and must make full principal-plus-interest payments. This transition can significantly increase your monthly payment, so it is important to plan ahead for the repayment phase.
Understanding Variable Rates on HELOCs
Most HELOCs carry variable interest rates tied to the prime rate, which means your rate and monthly payment can fluctuate as the Federal Reserve adjusts benchmark rates. When rates rise, your HELOC payments increase accordingly, and vice versa. Some lenders offer fixed-rate conversion options that let you lock in a rate on a portion of your balance, providing more payment predictability while retaining the flexibility of a revolving credit line.
Best Uses for a HELOC
HELOCs are well suited for expenses that occur over time, such as phased home renovations, ongoing education costs, or as an emergency financial safety net. Because you only pay interest on what you draw, a HELOC can be more cost-effective than a lump-sum home equity loan when you are unsure of the total amount needed. Home improvement projects that increase your property value can be particularly strategic uses, as they build equity while utilizing it.
Frequently Asked Questions
Most lenders use 80-85% of your home's appraised value minus your outstanding mortgage balance. On a $400,000 home with $250,000 owed, an 85% LTV gives you a maximum credit line of $90,000.
The draw period typically lasts 5-10 years, during which you can borrow as needed and usually make interest-only payments. After the draw period ends, you enter a 10-20 year repayment period with principal and interest payments.
Most HELOCs have variable interest rates tied to the prime rate. This means your rate and payment can increase or decrease as market rates change. Some lenders offer a fixed-rate conversion option for portions of your balance.
Yes. A HELOC is secured by your home, meaning the lender can foreclose if you default on payments. It is important to borrow responsibly and ensure you can make payments even if rates rise significantly.