HELOC

A Home Equity Line of Credit (HELOC) is a revolving credit line secured by the equity in your home — the difference between your home's market value and your outstanding mortgage balance. Unlike a lump-sum loan, a HELOC works like a credit card: you're approved for a maximum credit limit and can borrow, repay, and re-borrow as needed during a set draw period.

Because it's secured by your home, a HELOC typically carries a much lower interest rate than unsecured credit like credit cards, but it also puts your home at risk if you default. Most HELOCs have variable interest rates tied to a benchmark index like the prime rate.

Available HELOC Credit = (Home Value × Maximum Combined LTV%) − Outstanding Mortgage Balance

During the draw period, minimum payments are usually interest-only: Monthly Interest Payment = Outstanding Balance × (Annual Rate / 12)

Your home is worth $500,000 and you owe $300,000 on your mortgage. Your lender allows a maximum combined LTV of 80%.

Maximum total borrowing = $500,000 × 80% = $400,000

Available HELOC credit = $400,000 − $300,000 = $100,000

If you draw $40,000 at a 9% variable rate, your interest-only payment during the draw period is roughly $40,000 × (9%/12) = $300/month. Use the HELOC calculator to model your own credit line and payments across both the draw and repayment periods.

• Variable rates mean payment risk: Because most HELOCs carry variable interest tied to a benchmark rate, your payment can rise significantly if rates increase, unlike a fixed-rate mortgage.
• Combined LTV matters, not just LTV: Lenders assess your total borrowing (existing mortgage plus the new HELOC) against your home value — see LTV for how this ratio is calculated on a single loan.
• Draw period vs. repayment period: Payments during the draw period (often interest-only) are much lower than during repayment, when principal amortization kicks in — plan for the payment jump in advance.
• A HELOC uses your home as collateral: Missed payments can lead to foreclosure, just as with your primary mortgage, since the line is secured by your property.
• Closing costs are typically lower than a cash-out refinance: HELOCs often have lower upfront costs than refinancing your entire mortgage, making them attractive for accessing equity without disturbing your existing loan's rate.