HOME EQUITY FINANCING
Home Equity Line of Credit (HELOC): Borrow What You Need, When You Need It
A HELOC lets you tap your home equity through a flexible credit line, without replacing your current mortgage. See how it works, what it costs, and whether it fits your plans.
Straight answers, no pressure. We’ll tell you if a HELOC isn’t the right fit.
HOME EQUITY FINANCING
Home Equity Line of Credit (HELOC): Borrow What You Need, When You Need It
A HELOC lets you tap your home equity through a flexible credit line, without replacing your current mortgage. See how it works, what it costs, and whether it fits your plans.
Straight answers, no pressure. We’ll tell you if a HELOC isn’t the right fit.
QUICK ESTIMATE
How Much Equity Could You Access?
Your available equity depends on your home’s current value, your existing mortgage balance, your qualifications, and lender guidelines.
HELOC BASICS
What Is a Home Equity Line of Credit?
A HELOC is a revolving line of credit secured by your home. You borrow only what you need, up to your approved limit, and generally pay interest only on the amount you use.
Your first mortgage stays in place. A HELOC is a second loan on top of it, which is why it’s popular with homeowners who have a great rate on their current mortgage.
Why homeowners use them
Reuse Your Credit: repay funds and potentially borrow again during the draw period.
Borrow as Needed: access your approved credit line when expenses arise.
Interest on What You Use: interest generally applies to the balance you have drawn.
Keep Your Mortgage: your existing first mortgage remains in place.
TWO-PHASE STRUCTURE
How a HELOC Works: Two Phases
The biggest payment change usually occurs when the draw period ends and repayment begins.
Phase 1
Draw Period
Typically 5 to 10 years
Borrow, repay, and borrow again
Minimum payments are often interest-only, though you can pay down principal anytime
Available credit refreshes as you repay
→
Phase 2
Repayment Period
Often 10 to 20 years
No additional borrowing
Payments include principal and interest until the balance is paid off
Monthly payments can rise significantly compared to the draw period
About the rate
Most HELOCs have a variable interest rate. It’s usually based on a benchmark rate (the prime rate) plus a margin tied to your credit profile. When the benchmark moves, your rate and payment can too. Some lenders offer a fixed-rate option on part or all of your balance. Ask us what’s available.
HOW MUCH CAN YOU BORROW?
An illustrative example
| Illustrative example | Amount |
|---|---|
| Home value | $400,000 |
| Maximum combined borrowing at 85% CLTV | $340,000 |
| Current mortgage balance | −$250,000 |
| Potential HELOC limit | $90,000 |
This example is for illustration only. Your actual limit depends on your appraisal, credit, income, and the lender’s guidelines.
WHAT LENDERS LOOK FOR
What Lenders Look For
Home equity
Usually at least 15% to 20% remaining after the HELOC.
Credit score
Commonly in the 620 to 680+ range, with better terms at higher scores.
Debt-to-income ratio
Often up to about 43%, sometimes higher with compensating factors. Lenders may calculate your payment based on the full credit line.
Mortgage payment history
Recent late payments on your current mortgage can lead to a decline.
Income and employment
Stable income and employment.
Home value
An appraisal or other acceptable valuation may be required.
USES
What Can You Use a HELOC For?
Home improvements
Renovations and repairs, often the best fit because the spending can build value in the home.
Debt consolidation
Replacing high-interest balances with a lower-rate line. See our debt consolidation page for the risks and trade-offs.
Emergency backup
Some homeowners keep a line open for unexpected costs.
Education or major life expenses
A word of caution
Your home secures a HELOC. Using it for things that won’t hold their value, like vacations or everyday spending, deserves careful thought.
FOR VETERANS
Have a VA Loan? A HELOC Can Let You Keep It.
If you have a VA loan with a rate you love, replacing it just to access cash may not make sense. A HELOC is a separate loan that sits behind your first mortgage, which means you can tap your equity without giving up your existing rate.
If you have a VA loan with a rate you love, replacing it just to access cash may not make sense. A HELOC is a separate loan that sits behind your first mortgage, which means you can tap your equity without giving up your existing rate.
THE HONEST VIEW
HELOC Pros and Cons
Pros
Flexibility: borrow only what you need, when you need it.
Interest on what you use, not on the full limit.
Often lower rates than credit cards or unsecured personal loans.
Reusable credit during the draw period.
Cons
Variable rates: payments can rise over time.
Payment shock: payments can jump when the repayment period begins.
Your home is collateral: if you can’t repay, you could lose your home.
Costs and fees: these can include appraisal, origination, or annual fees, which vary by lender.
Your line can change: lenders may reduce or freeze a line under certain conditions, such as a drop in home value.
Temptation: easy access to credit can make it easy to borrow more than planned.
TAXES
Is HELOC Interest Tax-Deductible?
Sometimes, but not always, and not for every use. Under current rules, interest on a HELOC may be deductible only if you use the funds to buy, build, or substantially improve the home that secures the loan. Interest on money used for debt consolidation or personal expenses generally isn’t deductible. You also have to itemize.
Tax rules are personal. Talk to a tax professional about your situation before counting on a deduction.
COMPARE
HELOC vs. Home Equity Loan vs. Cash-Out Refinance
| HELOC | Home equity loan | Cash-out refinance | |
|---|---|---|---|
| How you get funds | Borrow as needed up to a limit | One lump sum | One lump sum at closing |
| Rate type | Usually variable | Usually fixed | Usually fixed |
| Your first mortgage | Stays in place | Stays in place | Replaced |
| Payments | Interest-only, then principal + interest | Fixed principal + interest | One new mortgage payment |
| Best when | You need flexible or ongoing access to funds | You need a set amount and want a predictable payment | Today’s rate beats your current rate and you want one payment |
Not sure which fits? We’ll compare them side by side using your numbers.
GETTING STARTED
How to Get a HELOC: 4 Simple Steps
1
Talk with a specialist
Tell us what you need the funds for and how much.
2
Review Your Options
We estimate your available equity and compare loan types.
3
Apply and provide documents
Typically pay stubs, tax documents, and mortgage statements.
4
Appraisal, approval, and closing
Once your home’s value is confirmed and you’re approved, your line opens.
QUESTIONS
HELOC FAQs
What is a HELOC?
A home equity line of credit is a revolving credit line secured by your home. You borrow as needed up to a limit, and you pay interest on what you use.
How does a HELOC work?
A HELOC has a draw period, typically 5 to 10 years, when you can borrow and often make interest-only payments. Then a repayment period, often 10 to 20 years, begins, when you repay principal and interest.
How much can I borrow with a HELOC?
Most lenders allow combined borrowing, your first mortgage plus the HELOC, of about 80% to 85% of your home's value, and some allow more. Your limit depends on your appraisal, credit, and income.
Do HELOCs have variable or fixed rates?
Most have variable rates tied to a benchmark such as the prime rate, so payments can change. Some lenders offer fixed-rate options on part of the balance.
What credit score do I need for a HELOC?
Requirements vary by lender. Many look for scores in the 620 to 680+ range, and better scores usually earn better terms.
Is HELOC interest tax-deductible?
Only if you use the funds to buy, build, or substantially improve the home securing the loan, and you itemize deductions. Interest on funds used for debt consolidation or personal expenses generally isn't deductible. Talk to a tax professional.
What happens if I can't repay a HELOC?
Because your home secures the loan, a lender could ultimately foreclose if you default. That's why it's important to borrow only what you can comfortably repay.
Can I get a HELOC if I have a VA loan?
Often, yes. A HELOC is a separate second loan, so it doesn't replace your VA loan. Eligibility depends on your loan documents and the HELOC lender's guidelines. Ask us about your situation.
Ready to Explore Your VA Loan Options?
Whether you are buying, refinancing or simply trying to understand what your VA benefit may allow you to do, you do not have to figure it out alone.
Talk with a Veteran Mortgage Solutions loan specialist and get clear answers about your options.
Serving Veterans and military families from coast to coast, where licensed.
