A HELOC is a revolving line of credit secured by your home equity — you draw what you need (up to the credit limit), pay interest only on what you draw, and repay flexibly over a 10-30 year period split between a draw phase and a repayment phase.
A Home Equity Line of Credit lets homeowners borrow against the equity built up in their primary residence (or sometimes a second home/investment property). It functions like a credit card secured by your home — you have a credit limit (typically 70-85% of home value minus existing mortgage), you draw what you need, and you pay interest only on the drawn portion. Most HELOCs have a two-phase structure: a 'draw period' (usually 10 years) where you can borrow and repay flexibly; followed by a 'repayment period' (usually 20 years) where the line closes to new draws and you amortize the outstanding balance. Interest rates are typically variable, tied to prime rate plus a spread, which means payment can fluctuate with Fed rate changes. HELOCs differ from home equity LOANS (lump-sum, fixed rate, fixed term) and from cash-out refinances (replace existing mortgage with a larger one, take the difference in cash). The HELOC is structurally cheaper for episodic borrowing needs but exposes you to variable-rate risk.
HELOC = revolving credit (like a credit card secured by home), variable rate, draw-as-needed. Home equity loan = lump-sum, fixed rate, fixed term, fully amortizing from day one. HELOC is better for episodic borrowing needs; home equity loan is better when you know the exact amount + repayment timeline.
Sometimes. Under the Tax Cuts and Jobs Act (TCJA), HELOC interest is deductible only when proceeds are used to 'buy, build, or substantially improve' the home that secures the loan. Using HELOC for debt consolidation, college tuition, or general spending does NOT qualify. Consult a tax professional for your specific situation.
HELOC rates are typically prime rate + 1-3% spread depending on credit. With prime around 7.5-8% as of mid-2026, HELOCs are pricing roughly 8.5%-11% APR. Excellent-credit borrowers at major banks can sometimes negotiate to prime + 0.5%. Rates are variable and reset monthly with prime; budget for potential payment increases.
Most lenders require 680+ FICO for HELOCs; best rates require 720+. Other factors: combined loan-to-value (CLTV) cap of 80-90%, debt-to-income ratio under 43-50%, stable income, primary residence preferred (investment-property HELOCs are harder to get and more expensive).