Home Equity Line of Credit
Work out how much you could borrow against your home, what you’d pay during the interest-only draw period, and what the payment jumps to when repayment begins — before you talk to a lender.
Maximum credit line
85% of $450,000, minus your $285,000 mortgage
Where your home’s value sits
Assumptions: the full amount is drawn on day one and the rate stays fixed for illustration — real HELOC rates are usually variable, so actual payments will move. No additional draws, fees, or closing costs are included. Extra payments apply during the repayment phase only.
With interest-only payments the balance stays flat through the draw period, then amortizes to zero during repayment.
What the amount you draw really costs.
HELOC rates are usually variable. Here’s what happens to your payments if your rate climbs 1–3 points before or during repayment.
| Rate | Draw payment / mo | Repayment payment / mo | Total interest |
|---|
Payments, interest, and remaining balance for each year of the line, based on the numbers above.
| Year | Phase | Payments | Principal | Interest | Balance |
|---|
A home equity line of credit is a revolving credit line secured by your house — think of it as a credit card with your home as collateral and a much lower rate. You’re approved for a maximum line, draw what you need when you need it, and only pay interest on what you’ve actually borrowed.
Lenders don’t lend against your full home value. They cap the combined loan-to-value — mortgage plus HELOC — typically at 80–85%:
Beyond equity, approval usually requires a credit score of 680 or higher, a debt-to-income ratio under roughly 43–50%, and documented income. Lenders also appraise the home, so the value they use may differ from your estimate.
Both borrow against the same equity, but they behave very differently. A HELOC suits staged, uncertain costs (a renovation in phases); a home equity loan suits one known, upfront expense.
| HELOC | Home equity loan | |
|---|---|---|
| How you get the money | Draw as needed, up to a limit | One lump sum at closing |
| Rate type | Usually variable (prime + margin); some lenders allow fixed-rate conversions | Fixed for the full term |
| Payments at first | Often interest-only during the draw period | Principal + interest from the first month |
| Typical term | 10-year draw + 20-year repayment | 5–30 years |
| Payment certainty | Low — payment rises if rates rise, and jumps when repayment starts | High — same payment every month |
| Best for | Ongoing or uncertain costs: phased renovations, education, emergency cushion | One-time, known costs: debt consolidation, a single large purchase |
| Main risk | Rate increases, payment shock, and the lender freezing the line if your home’s value falls | Paying interest on the full amount from day one, even if you don’t spend it |
Most lenders cap your combined loan-to-value (CLTV) at 80–85% of your home’s value. Your maximum credit line is your home’s value multiplied by the CLTV limit, minus your remaining mortgage balance. On a $450,000 home with a $285,000 mortgage and an 85% limit, the maximum line is $97,500. Individual lenders set their own caps — a few go to 90% for very strong borrowers, many stop at 80%.
You can no longer borrow, and your payment converts from interest-only to principal-plus-interest spread over the repayment period. On a $50,000 balance at 8.5%, that’s a jump from about $354 to about $434 a month — and if rates have risen in the meantime, the jump is bigger. Some lenders instead demand a balloon payment of the full balance, so check your agreement for which structure you have.
Most are variable, indexed to the prime rate plus a margin set by your credit profile. When the Federal Reserve raises or cuts rates, your HELOC rate — and your payment — typically follows within a billing cycle or two. Many lenders offer a fixed-rate option that lets you lock all or part of a drawn balance at a fixed rate for a set term.
Most lenders look for a credit score of 680 or higher; some will approve scores in the mid-600s if you have substantial equity and low debts. Expect to document income and employment, show a debt-to-income ratio below about 43–50%, and pay for an appraisal. Having more equity than the minimum materially improves both approval odds and the rate you’re offered.
Generally, interest is deductible only when the borrowed funds are used to buy, build, or substantially improve the home that secures the loan — a kitchen remodel qualifies, using the line to pay off credit cards usually does not. Rules and limits change, and state treatment varies, so confirm your situation with a tax advisor before counting on the deduction.
Yes. If your home’s value drops significantly, your financial circumstances change materially, or you miss payments, a lender can freeze new draws or reduce your limit. This happened widely after the 2008 housing crash. It’s one reason a HELOC shouldn’t be your only emergency backstop.
Costs vary widely. Some lenders charge no closing costs but may add an annual fee or an early-closure fee if you shut the line within the first few years. Others charge application, appraisal, title, and attorney fees that can total several hundred to a few thousand dollars. Ask for a full fee disclosure in writing, and check whether “no closing costs” comes with a higher rate.