What Is a HELOC? (Home Equity Line of Credit Explained)

How a HELOC Works

A HELOC has two phases: Draw Period (typically 10 years): You can borrow up to your credit limit, repay, and borrow again. During this phase, you typically only pay interest on what you've borrowed. Minimum payments are usually interest-only. Repayment Period (typically 20 years): The line closes and you repay the outstanding balance in fixed monthly payments (principal + interest). Payments increase significantly from the draw period — this is called "payment shock."

Phase	Duration	Payment Type	Example ($50K balance at 8%)
Draw Period	10 years	Interest only	~$333/month
Repayment Period	20 years	Principal + Interest	~$418/month

HELOC vs. Home Equity Loan

Feature	HELOC	Home Equity Loan
Structure	Revolving line of credit	Lump sum loan
Interest Rate	Variable (tied to prime)	Fixed
Payments	Variable (draw period)	Fixed monthly
Best For	Ongoing expenses (renovations)	One-time expenses
Risk	Rate can rise	Predictable payments

Current HELOC Rates (March 2026)

Current average HELOC rates are approximately 8.25%–9.50% for borrowers with good credit (700+). Rates are variable and tied to the prime rate. With a 780+ credit score and 80% or lower combined LTV, you may qualify for rates near 8.00%.

HELOC Requirements

To qualify for a HELOC, you typically need: (1) At least 15–20% equity in your home (80% or lower combined LTV). (2) Credit score of 620+ (most lenders prefer 680+). (3) Debt-to-income ratio under 43%. (4) Stable income and employment history. The amount you can borrow is typically 80%–85% of your home's appraised value minus your outstanding mortgage balance.

Frequently Asked Questions

What is a HELOC and how does it work?

A HELOC (Home Equity Line of Credit) is a revolving line of credit secured by your home. You can borrow up to your credit limit during the draw period (typically 10 years), repay, and borrow again — similar to a credit card. After the draw period, you repay the balance over 20 years. Rates are variable, tied to the prime rate.

What credit score do you need for a HELOC?

Most lenders require a minimum credit score of 620 for a HELOC, but the best rates go to borrowers with 700+ scores. With a 780+ score, you may qualify for rates near the prime rate. With a 620–660 score, expect rates 2–4% higher than the best available.

Is a HELOC a good idea?

A HELOC can be a good idea for home renovations (which can increase your home's value), debt consolidation (replacing high-rate credit card debt with lower-rate HELOC debt), or large planned expenses. It's risky if you might struggle to make payments — your home is collateral and you could lose it to foreclosure if you default.

What is the difference between a HELOC and a cash-out refinance?

A HELOC is a second lien on your home — your first mortgage stays in place. A cash-out refinance replaces your entire mortgage with a new, larger mortgage and gives you the difference in cash. HELOCs have variable rates; cash-out refis can be fixed. If current mortgage rates are higher than your existing rate, a HELOC is usually better than a cash-out refi.