HELOC (Home Equity Line of Credit)
Also known as: Home Equity Line of Credit, Home equity line
A revolving line of credit secured by home equity, typically with a 10-year draw period at variable Prime+margin rates followed by a 10-20 year repayment period. The most flexible home-equity tap and the dominant choice post-2022 versus cash-out refi.
Last updated:
A Home Equity Line of Credit is a revolving credit facility secured by the equity in the borrower's primary residence (and occasionally a second home). The lender approves a maximum credit line based on the borrower's available equity (typically up to 80-85% of home value minus existing mortgage balance), credit profile, and income. The borrower can draw against the line as needed during the draw period, repay, and re-draw — similar mechanically to a credit card but with a much higher line, lower interest rate, and home-as-collateral. The first draw is taken at closing or thereafter; subsequent draws are accessed via checks, debit card, or online transfer.
The standard HELOC structure has a 10-year draw period during which the borrower pays interest-only on the drawn balance (most HELOCs), at a variable interest rate tied to the Prime Rate plus a lender margin of typically 0% to 3%. The variable rate resets monthly with Prime Rate changes — meaning a Federal Reserve rate hike of 0.50 percentage points flows through to the HELOC payment within the next month. After the draw period ends, the loan converts to a repayment period (typically 10 to 20 years) during which principal-plus-interest payments amortize the remaining balance to zero. The transition can produce a substantial payment jump that catches unprepared borrowers off guard.
HELOCs became the dominant home-equity tap after 2022 as the rate environment shifted. With many US homeowners holding sub-4% first mortgages from the 2020-2021 refinance wave, cash-out refinances (which require replacing the entire mortgage at current market rates) produce dramatically higher monthly payments and become uneconomic. The HELOC structure preserves the low first-mortgage rate and adds a small variable-rate second lien only on the actually-drawn portion — a much smaller payment impact for the typical $25,000 to $100,000 home-equity tap. The trade-off is variable rate exposure: HELOC rates in 2024-2026 ranged from approximately 8% to 11% APR depending on borrower profile, vs the 7% range typical for new first mortgages.
The tax treatment of HELOC interest changed materially under the 2017 Tax Cuts and Jobs Act. HELOC interest is now deductible on Schedule A only if the proceeds are used to 'buy, build, or substantially improve' the home that secures the loan. Interest on HELOC proceeds used for other purposes (debt consolidation, college tuition, business investment, vehicle purchase) is no longer deductible. The total combined mortgage-plus-HELOC indebtedness on which interest is deductible is capped at $750,000 for loans originated after December 15, 2017 ($375,000 if married filing separately). Document the use of HELOC proceeds explicitly to support any deduction taken — IRS audit guidance specifically targets this area.
- HELOC vs cash-out refinance — which home equity tap fits the spend How each product works mechanically, the rate-environment effect on the choice, the tax-deduction interaction, and three worked-example scenarios.
- FHA vs Conventional vs VA — which program fits which household Side-by-side mechanics: down payment, mortgage insurance, credit score floors, loan limits, and the household profile that makes each program the right pick.
- How to shop a US mortgage — lender comparison without credit damage The 45-day rate-shopping window, the Loan Estimate disclosure, points break-even math, and the lender-by-lender protocol that saves $20K+ over the loan.
- Credit card minimum payment math — the decades-long debt trap How the minimum payment on a $5,000 or $10,000 balance revolves for decades, what the CARD Act box really tells you, and how to pay the right amount.
- Credit card charge-off: 180 days past due + 7 years (15 U.S.C. 1681c) Both clocks verified: charge-off at 180 days past due is an FFIEC bank rule the CFPB echoes; removal comes 7 years + 180 days after first delinquency (§1681c).
Educational content only. finbarrow is an independent editorial publication, not a licensed financial advisor, broker, tax preparer, or attorney. Verify rates and terms with the issuer or relevant regulator. See disclaimers.