A HELOC (Home Equity Line of Credit) is a revolving second mortgage secured by your home. You get approved for a maximum line; you draw what you need; you pay interest only on the drawn balance during the draw period (typically 10 years); then the loan converts to amortizing payments for the repayment period (typically 20 years).
Worked example: $600,000 home, $320,000 first mortgage balance. Lender allows 85% CLTV on HELOCs, so max total liens = $510,000. Subtract first mortgage: $190,000 max HELOC line. If you draw $80,000 at 8.5% (Prime + 0.5%), your interest-only monthly payment during draw = $80,000 × 8.5% / 12 = $567/month.
HELOC vs cash-out refinance
In a high-rate environment, HELOC almost always beats cash-out refi. Cash-out refi resets your entire first mortgage rate. If you have a 3.5% first mortgage, refinancing into a 7.25% cash-out rate to access $50K in equity is financially catastrophic. A HELOC at 8.5% on just the $50K preserves the 3.5% first mortgage. Run both in our cash-out refinance calculator and compare.
HELOC rate structure
- Variable rate — almost all HELOCs are Prime + margin. Prime is 7.5% in April 2026. Margins run 0% to +1.5% depending on credit and CLTV.
- Introductory teaser — many lenders offer 6-12 months at a below-Prime rate to get you in the door. Read the reset terms.
- Lifetime cap — usually 18%. Federal ceiling. Irrelevant today but matters in a crisis-rate environment.
Best uses of a HELOC
- Home improvement that raises home value — kitchen, bath, finished basement, ADU build
- Bridge loan between buying new home and selling old
- Short-term liquidity cushion — set it up before you need it
- Debt consolidation if disciplined (replace 22% credit cards with 8.5% HELOC)
Dangerous uses
- Vacations, cars, consumption that does not build wealth
- Investment speculation
- Long-term debt where a fixed home equity loan would be cheaper