What Is a HELOC?
A Home Equity Line of Credit (HELOC) is a revolving credit line secured by your home equity — the difference between your home's current market value and your outstanding mortgage balance. Like a credit card, you can draw funds up to your credit limit during the draw period (typically 5–10 years), make interest-only payments, then repay principal during the repayment period (10–20 years).
How Much Can You Borrow?
Lenders calculate your maximum HELOC using the Combined Loan-to-Value (CLTV) ratio. Most lenders allow a maximum CLTV of 80%–90% of your home's appraised value. Formula: Max HELOC = (Home Value × Max CLTV%) − Mortgage Balance. For example: $500,000 home × 85% CLTV = $425,000 − $320,000 mortgage = $105,000 HELOC limit.
HELOC vs. Cash-Out Refinance
A HELOC preserves your existing mortgage rate and gives you flexible draw access. A cash-out refinance replaces your entire mortgage with a new larger loan — better if current rates are lower than your existing rate. Use our Refinance Calculator alongside this tool to compare both options.
Common HELOC Uses
- Home improvements — Interest may be tax-deductible if used for home improvements
- Debt consolidation — Lower rate than credit cards, but your home secures the debt
- Emergency fund backup — Established HELOC you only draw if needed
- Education expenses — Often lower rate than student loans
Frequently Asked Questions
A Home Equity Line of Credit (HELOC) is a revolving credit line secured by your home equity. Like a credit card, you draw funds as needed up to your limit during the draw period, then repay during the repayment period.
Most lenders allow you to borrow up to 85% of your home's current value minus your outstanding mortgage balance. For example, a $500,000 home with $300,000 mortgage = $125,000 HELOC limit at 85% CLTV.
LTV (Loan-to-Value) is your mortgage balance divided by home value. CLTV (Combined LTV) includes your mortgage plus HELOC divided by home value. Lenders typically cap CLTV at 80%–90%.
HELOC rates are variable and typically tied to the prime rate. Current HELOC rates range from 8%–12% depending on your credit profile and lender.
The draw period (typically 5–10 years) is when you can borrow funds and pay interest only. The repayment period (10–20 years) is when you repay principal plus interest on the outstanding balance.
HELOC interest is deductible only when the funds are used to buy, build, or substantially improve the home securing the loan. Interest on HELOCs used for other purposes is not deductible.
A HELOC offers flexible access to funds with variable rates. A home equity loan gives you a fixed lump sum at a fixed rate. Choose a HELOC for flexible ongoing needs; choose a home equity loan for a one-time large expense.
Most lenders require a minimum credit score of 620–680 for a HELOC. Higher scores (740+) get the best rates. Lenders also evaluate your DTI ratio and home equity percentage.
Yes, but carefully. Converting high-interest unsecured debt to home-secured debt can save on interest but puts your home at risk if you cannot repay. Combine with a debt elimination plan.
If your home value drops significantly, lenders can freeze or reduce your HELOC limit, even on an existing line. This happened widely during the 2008 housing crisis.