Reviewed by the Editorial Team · Updated October 18, 2026 · 8 min read
A HELOC is a revolving line of credit secured by your home, priced at the prime rate plus a lender-set margin. You draw what you need during the draw period, usually paying interest only, then repay the balance with principal and interest over a set term.
Key takeaways
A HELOC is a revolving credit line secured by your home, usually priced at the prime rate (7.00% as of Oct 27, 2026) plus a lender-set margin.
You borrow as needed during a draw period, often 10 years, typically paying interest only; a 20-year principal-and-interest repayment usually follows.
On a $50,000 balance at 8.00%, the payment rises from about $333 to $418 when repayment starts, and to $483 if rates climb two percentage points.
Most lenders cap combined loan-to-value at 80–85% and set a minimum credit score of 620–680; your terms depend on the lender and property.
Rate type
Variable — prime + margin
Draw / repayment
Often 10 + 20 years
Max combined LTV
Usually 80–85%
Min credit score
Often 620–680
Prime rate today7.00%Fed H.15 via FRED · as of Oct 27, 2026 · 7.25% a year earlier. Most HELOCs are priced at prime + a margin.
$50,000 HELOC payment$333 → $418Interest-only draw → 20-year repayment at 8.00% (prime + 1). See the full example ↓
How a HELOC works
A HELOC is a second lien behind your existing mortgage, secured by the equity you've built. Instead of a lump sum, you get a credit limit you can draw against, repay, and draw again — much like a credit card backed by your house.
Draw period: often 10 years; borrow, repay and re-borrow up to your limit
Minimum payment while drawing: usually interest only on what you've used
Repayment period: often 20 years of principal and interest, no new draws
Rate: moves with prime, so both payments can rise or fall
When the draw period ends, the line closes to new borrowing and the required payment is recalculated to pay off the balance. Some agreements instead require the full balance as a balloon payment — check yours before you sign.
How much you can borrow
Lenders multiply your home's value by a combined loan-to-value (CLTV) cap, then subtract what you still owe. Most cap CLTV at 80–85%; a few allow 90% for strong credit on a primary residence.
Possible credit limit on a $400,000 home with a $250,000 mortgage
How much you can borrow
CLTV cap
Max total debt
HELOC limit
80%
$320,000
$70,000
85%
$340,000
$90,000
90%
$360,000
$110,000
How you draw the money
Online transfer from the line to your checking account
Special HELOC checks or a card linked to the line
An initial draw at closing, which some lenders require
On a primary home, funds after a three-business-day rescission period
What a HELOC really costs
HELOC rates are quoted as an index — almost always the prime rate — plus a margin the lender sets from your credit score and CLTV. Prime is 7.00% as of Oct 27, 2026, so a line at prime + 1 charges 8.00% today.
Worked exampleMonthly payment by phase at 8.00% — prime 7.00% + a 1.00-percentage-point margin
What a HELOC really costs
Balance
Draw periodinterest-only, yrs 1–10
Repayment20-yr P&I
If rates +2repayment at 10.00%
$25,000
$167
$209 +$42
$241
$50,000
$333
$418 +$85
$483
$100,000
$667
$836 +$169
$965
Minimum payments, all 30 years$90,280interest on $50,000 — 10 yrs interest-only, then 20 yrs amortizing
Paying it off over 10 years$22,840interest on $50,000 at $607/mo from the first draw
Prime rate: 7.00% (Fed H.15 via FRED, as of Oct 27, 2026). The 1.00-percentage-point margin is illustrative — lenders set yours from your credit score and combined loan-to-value. Assumes the full balance is drawn on day one and the rate stays flat unless noted. Run your own numbers
The jump at repayment is the number to plan around. On $50,000 at 8.00%, the minimum payment rises by about $85 a month the day the draw period ends — before any rate increase.
The minimum-payment trap
Paying only the minimum for all 30 years costs about $90,280 in interest on $50,000 — more than the amount borrowed. Repaying the same balance over 10 years from the first draw, at about $607 a month, cuts interest to roughly $22,840.
Fees that don't show up in the rate
Closing costs on a HELOC are often low or waived, which makes the line cheap to open. The costs that matter sit in the agreement's fee schedule instead:
Annual fee: some lines charge one whether or not you draw
Early-closure fee: or repayment of waived closing costs within a few years
Transaction fee: some lenders charge each time you draw
Appraisal or valuation fee: sometimes billed even when closing costs are waived
Fixed-rate options on a HELOC
Many lenders let you lock all or part of your balance at a fixed rate, turning that slice into a fixed installment while the rest of the line stays variable. A lock may carry a fee, and the fixed rate is often higher than the variable one, so compare it with a home equity loan.
When a HELOC goes wrong
Most HELOC problems come from terms borrowers skim at closing, not from the rate on day one. These are the clauses to read twice:
Line freeze or cut: draws can stop if your home's value drops significantly
Rising rate: the contract's lifetime cap is often far above today's rate
Balloon payment: some lines demand the full balance when the draw ends
Collateral: missed payments can lead to foreclosure, as with your first mortgage
Freezes are not hypothetical. Federal Regulation Z lets lenders suspend draws or lower the limit when a home's value falls well below its appraisal or your finances change materially, and many lines were frozen this way in 2008–2009.
Plan for the worst month
Before you open a line, price the repayment payment at today's rate plus 2 percentage points. On $50,000 that is about $483 a month — if that would strain your budget, borrow less or lock part of the balance.
HELOC vs. home equity loan vs. cash-out refinance
All three turn home equity into cash, but they differ in how you receive the money, how the rate behaves, and what happens to your first mortgage.
Three ways to borrow against your home
HELOC vs. home equity loan vs. cash-out refinance
HELOC
Home equity loan
Cash-out refinance
How you get funds
Draw as needed, up to a limit
One lump sum at closing
One lump sum at closing
Rate
Variable: prime + margin
Usually fixed
Fixed or adjustable
First mortgage
Untouched
Untouched
Replaced by a larger loan
Upfront costs
Low or waived; watch annual fees
Typically 2–5% of the loan
Typically 2–5% of the new loan
Payment
Interest-only option, then a jump
Fixed from day one
One payment on the new loan
Fits best
Phased or uncertain costs
One known expense
A new rate below your current one
With a low-rate first mortgage, a HELOC or home equity loan usually costs less overall than refinancing the whole balance at a higher rate. For a deeper side-by-side, read HELOC vs. home equity loan or the cash-out refinance guide.
Who a HELOC fits
A HELOC suits borrowing you can't size upfront — costs that arrive in stages rather than all at once.
Phased renovation or ongoing tuition bills
An emergency reserve you'd rather not carry as debt until needed
Borrowers who want to keep a low first-mortgage rate untouched
Comfort with a payment that can move with the Fed
Skip it if you need one known amount today and want payment certainty — a home equity loan or cash-out refinance fits that better.
HELOC: pros and cons
Pros
Draw only what you need, when you need it
Interest-only payments during the draw period
Low or waived closing costs at many lenders
Usually cheaper than credit cards or personal loans
Cons
Variable rate can raise your payment
Payment jumps when repayment begins
Lender can freeze or cut the line
Your home secures the debt
What lenders look for
Requirements vary by lender, but published minimums cluster in a narrow band. Most lenders want a credit score of at least 620–680, a debt-to-income ratio around 43% or lower, and 15–20% equity left after the line opens.
Scores of 720 and up and CLTVs under 80% usually earn the lowest margins. Second homes and rentals face tighter caps, and some lenders offer HELOCs only on primary residences.
Requirements at a glance
Combined loan-to-value usually at or below 80–85% (some lenders allow 90%)
Credit score of at least 620–680, depending on the lender
Debt-to-income ratio of 43% or lower at many lenders, up to 50% at some
Appraisal or automated valuation to confirm your home's value
Documented income that supports the repayment-period payment
Most HELOCs charge the prime rate plus a margin the lender sets from your credit and CLTV. Prime is 7.00% as of Oct 27, 2026, so a line at prime + 1 would charge 8.00%.
When prime moves after a Fed decision, your rate moves with it on the schedule in your agreement.
How much can I borrow with a HELOC?
Multiply your home's value by the lender's CLTV cap, usually 80–85%, and subtract your mortgage balance. On a $400,000 home with $250,000 owed, an 85% cap allows a line of up to $90,000, or $70,000 at 80%. Your credit, income and property type can lower the cap.
What credit score do you need for a HELOC?
Most lenders set a minimum in the 620–680 range, and the lowest margins usually go to scores of 720 and up.
Lenders weigh your score alongside CLTV and debt-to-income, so ample equity can partly offset a mid-range score — but below 620, approval is difficult.
What is the monthly payment on a $50,000 HELOC?
About $333 a month interest-only at 8.00% while you're drawing, then about $418 once a 20-year repayment begins. If rates are two percentage points higher by then, the repayment payment is about $483.
Your own figure depends on your margin and how much of the line you've used.
What happens when the HELOC draw period ends?
New draws stop and the payment is recalculated to repay principal and interest, usually over about 20 years. On $50,000 at 8.00%, that lifts the minimum from about $333 to $418 a month.
Some agreements instead require a balloon payment of the full balance, so check yours early.
What is the downside to a HELOC?
The main downsides are a variable rate that can raise your payment, a payment jump when repayment starts, and the lender's right to freeze or cut the line if your home's value drops. Because your home secures the debt, falling behind can ultimately lead to foreclosure.
Is a HELOC a trap?
Not inherently, but minimum payments can become one. Paying interest only for 10 years and then amortizing over 20 costs about $90,280 in interest on $50,000 at 8.00% — more than you borrowed.
Paying principal from the first draw, or clearing the balance within a few years, avoids most of that.
Is HELOC interest tax deductible?
Only if you itemize and use the money to buy, build or substantially improve the home that secures the line, according to IRS Publication 936.
Interest on HELOC money spent on a car, tuition or credit-card payoff isn't deductible as home mortgage interest.
Can a lender freeze or reduce my HELOC?
Yes, in specific situations. Federal Regulation Z lets a lender suspend draws or lower your limit if your home's value falls significantly below its appraised value, your finances change materially, or you default on a material term. Many lines were frozen this way during the 2008–2009 housing crash.
What's the difference between a HELOC and a home equity loan?
A HELOC is a revolving credit line with a variable rate — you draw as needed and repay what you use. A home equity loan is a fixed-rate lump sum with a fixed payment from day one.
HELOCs suit ongoing or uncertain costs; home equity loans suit one-time expenses where you want payment certainty.
This guide is general information, not a lending decision. Program rules and dollar limits change — verify current figures with a licensed lender and confirm licensing at NMLS Consumer Access. See all loan types.
Nothing matches that. Try “refinance”, “FHA”, “Texas”, “Rocket” or “PMI”.