What a HELOC is
A home equity line of credit lets you borrow against available equity up to an approved limit. It works like a secured credit line: draw when you need funds, repay, and draw again during the draw period.
The lender secures the line with your property, similar to a mortgage. Because it is secured, rates are often lower than unsecured credit cards, but your home is at risk if you default.
Draw and repayment phases
Most HELOCs have a draw period of several years when you can access funds and may pay interest only. After that, repayment begins and you can no longer draw, or only at reduced limits.
Payment shock is common when interest-only draw periods end. Plan ahead for principal plus interest payments or paying down the balance before the phase changes.
Rates and fees
HELOC rates are usually variable and tied to a benchmark plus a margin. Your payment changes when the benchmark moves. Some lenders offer a fixed-rate option on portions of the balance.
Watch annual fees, early closure fees, and appraisal costs. Compare the full cost of credit, not just the starter promotional rate if one is offered.
Using a HELOC responsibly
HELOCs fit staged projects, emergency buffers, or short-term bridges when you have a clear repayment plan. They are a poor fit for everyday spending without discipline.
Keep a budget for rate rises and avoid maxing the line. Leaving headroom protects you if property values soften or your income dips.
FAQs
How much can I borrow with a HELOC?
Lenders set a limit based on equity, credit, income, and combined loan-to-value caps. You typically cannot borrow up to 100 percent of home value when including your first mortgage.
Is HELOC interest tax deductible?
Rules vary by country and use of funds. Deductibility is not guaranteed. This is general information only; consult a tax professional for your situation.
Can I convert a HELOC to a fixed loan?
Some lenders let you fix all or part of the balance. Terms and fees differ. Ask before you draw if you want that flexibility later.
General information only. Not financial, tax, insurance or credit advice.