A home equity line of credit (HELOC) gives you a revolving credit line against your home's equity. Borrow what you need, when you need it — often at lower rates than credit cards or personal loans.
A HELOC is a second mortgage that acts like a credit card backed by your home equity. During the draw period (usually 10 years), you can borrow, repay, and borrow again. After the draw period ends, the repayment period begins — typically 15–20 years to pay off the balance.
HELOCs are attractive because you only pay interest on what you borrow, and interest rates are often lower than unsecured debt like credit cards.
| Feature | HELOC | Cash-Out Refi | Home Equity Loan |
|---|---|---|---|
| Borrowing | Revolving (draw/repay/draw) | Lump sum upfront | Fixed amount upfront |
| Rate Type | Usually variable | Fixed (replaces mortgage) | Fixed (second mortgage) |
| Timeline | 10-yr draw + 15–20-yr repay | Immediate (part of new mortgage) | Immediate (separate loan) |
| Best for | Ongoing/flexible needs | One-time large expense + lower primary rate | Lower costs than cash-out refi |
| Closing costs | $500–$1,500 | 2–5% of mortgage amount | $500–$2,000 |
Typically at least 15–20% equity in your home (80–85% LTV max).
Usually 620+ (higher scores = better rates). Most lenders prefer 680+.
Lenders typically want your DTI below 43–50%, including the HELOC.
Stable income (W-2, 1099, or bank statements). 2 years employment history preferred.
HELOC rates are variable and tied to the prime rate, which means they fluctuate with market conditions. Most lenders offer rates in the 8–10% range currently, but your rate depends on your credit score, equity, and lender.
Because HELOCs have variable rates, monthly payments can change over time. Some lenders offer a fixed-rate option for part of your draw for added stability.
HELOCs work best for borrowers who need flexible, ongoing access to funds:
HELOCs come with tradeoffs. Your home is the collateral, so if you can't repay, lenders can foreclose. Interest rates rise and fall with the market, so your monthly payment is unpredictable. Some lenders have frozen or closed HELOCs during recessions, cutting off access when you need it most.
To mitigate risk, borrow conservatively, make principal payments during the draw period if possible, and lock in a fixed rate for part of the line.
Yes. Self-employed borrowers can qualify with 2 years of tax returns, profit-and-loss statements, and a strong credit score. Some lenders are more flexible than others; shop around.
A reverse mortgage is a different product aimed at borrowers 62+. We focus on traditional HELOCs for homeowners of any age.
It's difficult. Most mainstream lenders require 620+. Some credit unions or local banks may go lower, but expect higher rates and stricter terms. Improving your credit first may be worth the wait.
Possibly, if the funds are used for home improvement. Interest for other uses (debt payoff, business) is generally not deductible. Consult a tax professional to confirm eligibility for your situation.
Learn about HELOCs and how they compare to other home equity borrowing options.
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