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Home Equity Line of Credit (HELOC): How It Works

A revolving line of credit secured by your home that you draw on as you need it.

By the Money Fox editorial team · Updated · Last reviewed

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How you get paid
A credit line you draw from as needed
Rate
Usually variable; some lenders offer fixed-rate options
Payments
Often interest-only while you draw, then principal and interest
Secured by
Your home
Best for
Ongoing or uncertain costs, like renovations done in stages

A home equity line of credit, or HELOC, lets you borrow against the equity in your home as you need it, up to a limit the lender sets. It works a bit like a credit card that’s secured by your house: you can draw money, repay it, and draw again while the line is open.

How a HELOC works

Most HELOCs have two phases.

  • Draw period. You can borrow from the line whenever you need to. Many lenders only require interest payments during this phase, though terms differ.
  • Repayment period. You can no longer draw, and you repay what you borrowed plus interest over a set number of years. Monthly payments often go up at this point.

Rates on HELOCs are commonly variable, which means your payment can change over time. Some lenders offer a way to fix the rate on part of your balance. Ask about it before you sign.

A worked example

This uses made-up rates, not current offers. Say you draw $40,000 from a HELOC.

  • During the draw period, at an example 9%: an interest-only payment is about $300 a month ($40,000 x 9% / 12).
  • If the rate rises two points to 11%: the same interest-only payment becomes about $367 a month, without you borrowing anything more.
  • In the repayment period, over an example 15 years at 9%: the payment becomes about $406 a month, because you’re now paying down the balance too.

Interest-only payments don’t shrink what you owe. The $40,000 is still there when the draw period ends.

Who a HELOC tends to suit

  • Homeowners with costs that come in stages or are hard to predict, like a renovation.
  • People who want to pay interest only on what they actually use.
  • Borrowers comfortable with a payment that may change.

Things to weigh

  • Your home is the collateral. If you can’t repay, you could lose your home.
  • Variable rates can rise, which raises your payments.
  • Fees vary. Ask about application, appraisal, annual and early-closure fees.
  • Lenders can freeze or reduce a line in some circumstances, such as a drop in your home’s value.
  • Tax treatment depends on how you use the money. See the FAQs below.

Compare before you choose

Offers differ on minimum line size, credit requirements, rates and fees. Use our comparison directory to filter lenders by how much you want to borrow, or answer a few questions to see options matched to your situation. Not sure whether a line or a lump sum fits better? See HELOC vs. home equity loan.

This article is for general information and isn’t financial, tax or legal advice. Example rates and payments are illustrations, not offers.

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Frequently asked questions

How is a HELOC different from a home equity loan?

A HELOC is a revolving line you can borrow from, repay and borrow from again during the draw period. A home equity loan pays you one lump sum up front with fixed payments.

How much can I borrow with a HELOC?

Lenders usually set a limit based on your home's value, what you owe on your mortgage, and your credit and income. Many cap your combined borrowing at a percentage of your home's value, often around 80%, but limits vary by lender.

What happens if I can't repay a HELOC?

Because the line is secured by your home, missing payments can put your home at risk. Only borrow an amount you're confident you can repay.

Is HELOC interest tax deductible?

In the U.S., interest on a HELOC is generally deductible only when the money is used to buy, build or substantially improve the home that secures the line, and only if you itemize. Interest on money used for other things, like paying off cards, generally isn't deductible. Tax rules change, so check with a tax professional.

Can I cancel a HELOC after I sign?

For a line secured by your primary home, federal law generally gives you three business days after signing to cancel without penalty. It doesn't apply in every situation, so ask your lender how it works for yours.

Published November 9, 2026. This article is for general information and isn't financial, legal or tax advice. Terms vary by lender and state. We may be compensated by companies featured on this site. See our advertiser disclosure.