What Is a HELOC?
A Home Equity Line of Credit, commonly known as a HELOC, is a revolving line of credit secured by the equity in your home. Think of it like a credit card, but with significantly lower interest rates — because your home serves as collateral.
Unlike a traditional home equity loan that gives you a lump sum upfront, a HELOC lets you borrow what you need, when you need it, during what is called the "draw period." You only pay interest on what you actually borrow.
How Does a HELOC Work?
A HELOC operates in two phases:
1. The Draw Period
Typically lasting 5 to 10 years, this is the period during which you can access your line of credit. You can borrow, repay, and borrow again — much like a revolving credit card. Most lenders allow interest-only payments during this phase, which keeps your monthly costs low.
2. The Repayment Period
After the draw period ends, you enter the repayment phase — usually 10 to 20 years. During this time, you can no longer draw funds and must repay both principal and interest. Monthly payments are typically higher during this phase.
How Much Can You Borrow?
Lenders typically allow you to borrow up to 85% of your home's appraised value, minus what you owe on your mortgage. For example:
- Home value: $500,000
- 85% of value: $425,000
- Current mortgage balance: $250,000
- Maximum HELOC: $175,000
HELOC vs. Home Equity Loan: What's the Difference?
Both products let you access your home equity, but they work differently. A HELOC is a revolving line with variable rates — ideal for ongoing or unpredictable expenses. A home equity loan gives you a fixed lump sum at a fixed rate — better for one-time, large expenses where you know the exact amount needed.
Best Uses for a HELOC
HELOCs are best suited for:
- Home renovations: The most common and tax-advantaged use
- Education expenses: Pay tuition semester by semester
- Emergency fund backup: Access funds without paying interest until needed
- Debt consolidation: Replace high-interest credit card debt with lower HELOC rates
- Business investment: Fund a business without touching retirement accounts
HELOC Rates: What to Expect
HELOC rates are typically variable and tied to the prime rate. As of 2025, well-qualified borrowers can expect rates starting around 6.5% APR. Your specific rate will depend on your credit score, loan-to-value ratio, and the lender you choose.
Is a HELOC Right for You?
A HELOC makes sense if you have substantial equity, a good credit score (620+), stable income, and a clear plan for how you'll use and repay the funds. If you're unsure, speaking with one of our licensed loan officers can help you determine whether a HELOC or another home equity product is the best fit.
Ready to find out how much equity you can access? Apply with True Equity Line today — no impact on your credit score for pre-qualification.