Loans Use your equity HELOC
HELOC: a line of credit on your home
A home equity line of credit lets you borrow against your home as you need the money, up to a set limit, while your first mortgage stays in place at its current rate.
New to this loan? Start here: Cash-out, or a second mortgage? A 3-minute lesson
Who it fits
Owners with equity and a first mortgage they want to keep, who need money over time rather than all at once: a remodel done in stages, tuition paid each year, or a reserve for repairs.
A HELOC or a cash-out refinance
- A HELOC leaves your first mortgage in place. Only the money you draw carries the line’s rate, which is usually variable.
- A cash-out refinance replaces your whole mortgage with a larger one, at one rate and one payment.
The fair way to compare them is the blended rate: the average rate on everything you would owe, weighted by balance. When your first mortgage rate is well below today’s, keeping it and adding a line on only the new money can cost less in interest. When it is not, one new loan can be simpler and cost less. The lesson Cash-out, or a second mortgage? works through it.
Questions to ask before you open one
- How is the rate set, and how often can it change?
- How long is the draw period, and what happens to the payment when it ends?
- Can part of the balance be moved to a fixed rate?
- Are there closing costs, yearly fees or a fee to close the line early?
- What happens to the line if the home’s value drops?
Calculators and guides
Common questions
How is a HELOC different from a home equity loan?
A home equity loan is one lump sum, usually at a fixed rate, repaid on a set schedule. A HELOC is a line you draw on as you need it, usually at a variable rate.
What happens when the draw period ends?
You can no longer borrow, and the balance is repaid over the repayment period, often with much higher payments. Some lines require the full balance at the end of the draw period. Ask how yours works before you sign.
Can the lender freeze my line?
Yes, in cases federal rules allow, such as a significant drop in your home’s value or a material change in your finances.
Is HELOC interest tax deductible?
Only in some cases, such as when the money is used to buy, build or substantially improve the home. Ask a tax professional before you count on it.