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What Is a HELOC, or Home Equity Line of Credit?
A HELOC lets you borrow against your home's value to access cash as needed.
Taylor Getler is a home and mortgages writer for NerdWallet. Her work has been featured in outlets such as MarketWatch, Yahoo Finance, MSN and Nasdaq. Taylor is enthusiastic about financial literacy and helping consumers make smart, informed choices with their money.
Kate Wood is a lending expert and certified financial health counselor (CHFC) who joined NerdWallet in 2019. With an educational background in sociology, Kate feels strongly about issues like inequality in homeownership and higher education, and relishes any opportunity to demystify government programs. Prior to NerdWallet, she wrote about home remodeling, decor and maintenance for This Old House.
Chris Jennings is a NerdWallet editor specializing in home lending topics. He has been writing and editing about mortgages and personal finance since 2016. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. Before joining NerdWallet, he wrote and edited content for a number of respected finance brands, including Bankrate, Forbes Advisor, and GOBankingRates.
Born and raised in the Chicago suburbs, Chris earned a bachelor's degree in English from Illinois State University. Chris now calls Los Angeles home, where he lives with his wife, daughter, and their dog.
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A home equity line of credit, or HELOC, is a second mortgage that gives you access to cash based on the value of your home. You borrow against your equity, which is the home’s value minus the amount you owe (if anything) on your primary mortgage. You can usually borrow up to 85% of your equity, depending on the lender’s borrowing limits.
You can make withdrawals from your line of credit up to your limit, which you’ll pay back in monthly installments. Since a HELOC is backed by your home, you’ll likely get a better interest rate than you would for an unsecured loan.
You could lose your home to foreclosure if you can’t keep up with payments, so it’s best to use your equity in a way that will build your wealth, like for home improvements.
A HELOC is a revolving line of credit secured by your home — you can draw from it as needed, like a credit card.
HELOCs often have lower interest rates than personal loans, credit cards and other kinds of unsecured debt.
Most HELOC lenders cap your combined loan-to-value ratio, or CLTV, at 85% — meaning all debt secured by your home, including your existing mortgage, can't exceed 85% of its appraised value.
HELOCs often have a 10-year draw period, during which you only have to pay interest.
After the draw period ends, you’ll typically have up to 20 years to pay back your principal balance plus interest. Most HELOCs have a variable interest rate, so payment amounts can change over time.
To qualify, lenders usually require a credit score of 640 or higher, though some accept lower scores.
How does a HELOC work?
HELOCs are broken up into two parts: the draw period, which you can think of as the borrowing period, and the repayment period.
Draw period: You can borrow money from the account, up to your approved limit. You have to make interest payments, but payments towards the principal are optional. This period typically lasts 10 years.
Repayment period: You can’t take out any more money, and you have to pay towards principal and interest until you’ve paid off what you’ve borrowed. If you chose not to pay towards the principal balance during the draw period, your minimum payments could go up by a lot. The length of the repayment period varies, but you’ll usually have up to 20 years.
How you’ll access your HELOC
You’ll have a few options to withdraw money from your HELOC, depending on what your lender offers. For example, you can access it via online transfer, with a bank card at an ATM or you can write checks from the account.
HELOC costs
In addition to interest, there are other costs to consider before taking out a HELOC.
Closing costs, which can range from 2% to 5% of the loan amount. These can include an origination fee, processing fees, an appraisal fee and more. Some lenders don’t charge closing costs at all, but in return, you might be required to keep the line open for a certain amount of time.
Annual fees. Some lenders charge annual fees for HELOC customers, which are often around $50 per year.
Early closure fee. You could also be on the hook if you decide to pay off your HELOC and close the account within a certain amount of time. This varies by lender, though, so double-check your loan agreement.
HELOC requirements
Lender requirements will vary, but here's what you'll generally need to get a HELOC:
What should I look for when comparing HELOC options?
Taylor Getler
Lead Writer and Content Strategist
As a homeowner, you're probably familiar with what it's like to shop for a mortgage. Finding the right HELOC is a little different, however, because these products can be totally customized from lender to lender. Conventional and government-backed mortgages have strict guidelines that all lenders must follow. While HELOCs have industry norms, there's not exactly a rule book. This means that the little details really matter — fees, repayment terms, minimum draw requirements and flexibility can all affect how much this loan really costs you over time.That’s what I focused on when building our best HELOC lenders list. It’s an easy place to help you start comparing without needing to comb through the fine print, because we've done that for you. We reviewed 40+ lenders and assessed them across 14 categories. I even stayed on hold with one lender for over 20 minutes to put their customer service to the test!
As a homeowner, you're probably familiar with what it's like to shop for a mortgage. Finding the right HELOC is a little different, however, because these products can be totally customized from lender to lender. Conventional and government-backed mortgages have strict guidelines that all lenders must follow. While HELOCs have industry norms, there's not exactly a rule book. This means that the little details really matter — fees, repayment terms, minimum draw requirements and flexibility can all affect how much this loan really costs you over time.That’s what I focused on when building our best HELOC lenders list. It’s an easy place to help you start comparing without needing to comb through the fine print, because we've done that for you. We reviewed 40+ lenders and assessed them across 14 categories. I even stayed on hold with one lender for over 20 minutes to put their customer service to the test!
Taylor Getler
Lead Writer and Content Strategist
Taylor Getler
Lead Writer and Content Strategist
As a homeowner, you're probably familiar with what it's like to shop for a mortgage. Finding the right HELOC is a little different, however, because these products can be totally customized from lender to lender. Conventional and government-backed mortgages have strict guidelines that all lenders must follow. While HELOCs have industry norms, there's not exactly a rule book. This means that the little details really matter — fees, repayment terms, minimum draw requirements and flexibility can all affect how much this loan really costs you over time.That’s what I focused on when building our best HELOC lenders list. It’s an easy place to help you start comparing without needing to comb through the fine print, because we've done that for you. We reviewed 40+ lenders and assessed them across 14 categories. I even stayed on hold with one lender for over 20 minutes to put their customer service to the test!
As a homeowner, you're probably familiar with what it's like to shop for a mortgage. Finding the right HELOC is a little different, however, because these products can be totally customized from lender to lender. Conventional and government-backed mortgages have strict guidelines that all lenders must follow. While HELOCs have industry norms, there's not exactly a rule book. This means that the little details really matter — fees, repayment terms, minimum draw requirements and flexibility can all affect how much this loan really costs you over time.That’s what I focused on when building our best HELOC lenders list. It’s an easy place to help you start comparing without needing to comb through the fine print, because we've done that for you. We reviewed 40+ lenders and assessed them across 14 categories. I even stayed on hold with one lender for over 20 minutes to put their customer service to the test!
Taylor Getler
Lead Writer and Content Strategist
Taylor Getler
Lead Writer and Content Strategist
As a homeowner, you're probably familiar with what it's like to shop for a mortgage. Finding the right HELOC is a little different, however, because these products can be totally customized from lender to lender. Conventional and government-backed mortgages have strict guidelines that all lenders must follow. While HELOCs have industry norms, there's not exactly a rule book. This means that the little details really matter — fees, repayment terms, minimum draw requirements and flexibility can all affect how much this loan really costs you over time.That’s what I focused on when building our best HELOC lenders list. It’s an easy place to help you start comparing without needing to comb through the fine print, because we've done that for you. We reviewed 40+ lenders and assessed them across 14 categories. I even stayed on hold with one lender for over 20 minutes to put their customer service to the test!
As a homeowner, you're probably familiar with what it's like to shop for a mortgage. Finding the right HELOC is a little different, however, because these products can be totally customized from lender to lender. Conventional and government-backed mortgages have strict guidelines that all lenders must follow. While HELOCs have industry norms, there's not exactly a rule book. This means that the little details really matter — fees, repayment terms, minimum draw requirements and flexibility can all affect how much this loan really costs you over time.That’s what I focused on when building our best HELOC lenders list. It’s an easy place to help you start comparing without needing to comb through the fine print, because we've done that for you. We reviewed 40+ lenders and assessed them across 14 categories. I even stayed on hold with one lender for over 20 minutes to put their customer service to the test!
Taylor Getler
Lead Writer and Content Strategist
Today’s HELOC rates
Rates vary by lender, and the annual percentage rate, or APR, that you’re offered depends on factors such as your credit score, debt and the amount you need to borrow.
Most HELOC rates are indexed to a base rate called the prime rate, which is the lowest credit rate lenders are willing to offer their most attractive borrowers. Lenders consider a borrower’s profile, and add a margin to the prime rate to calculate a rate offer.
For example, if a lender adds a margin of 1.5% to a prime rate of 8.5%, that borrower’s rate will be 10%.
Prime Rate, Effective 12/11/25
Current prime rate — last changed Sept. 2026
Prime rate last week
Prime rate in the past year — low
Prime rate in the past year — high
Projected median prime rate for 2026
7.00%
6.75%
6.75%
7.50%
7.10%
Variable vs. fixed interest rates
Most HELOCs have adjustable interest rates. This means that as interest rates go up or down, your HELOC rate will change too.
Some lenders also offer a fixed-rate option. This lets you lock in your APR when you draw from your equity, which protects your loan from rising interest rates and can make long-term financial planning a little easier.
NERDY EXPERT
Jesse Haddad |Loan Officer at Next Door Lending, a wholly owned subsidiary of NerdWallet
On HELOC misconceptions and customer anxieties:
“I think a lot of people get afraid because of the whole "variable interest rate" situation, but they don't realize that it's going off of the prime rate. The prime rate is pretty predictable as far as how the market goes, and they don't realize that you can do an interest-only payment — which makes your payment way lower than what you would actually get on, say, a cash-out refinance.”
Getting the best HELOC rate
You should shop around with at least three lenders when looking for the best HELOC rate. Check your bank or mortgage provider to see if they offer discounts to existing customers. Also, take note of introductory offers like initial rates that will expire at the end of a given term.
After you’ve completed the application process, you’ll go through underwriting. This can take several weeks. Once you’ve been approved you’ll close on the loan and sign the paperwork.
🤓Nerdy Tip
Don't assume the price you paid at closing is what your home is worth today. If home prices in your area have gone up while you've owned your home, you may have more equity than you realize.
How much can you borrow with a HELOC?
The maximum amount of your home equity line of credit will vary based on the value of your home, the lender’s maximum borrowing limit and how much you owe on your first mortgage.
Alternatively, you can use NerdWallet’s HELOC calculator below to determine how much you might be able to borrow with a HELOC.
Pros and cons of a HELOC
Whether a home equity line of credit is a good idea really comes down to your goals and financial situation.
Pros
A HELOC is often used for home repairs and renovations, which can increase your home's value.
You could get a better rate with a HELOC than with an unsecured loan.
The interest on your HELOC may be tax-deductible up to certain limits. However, this only applies if you use the money to “buy, build or substantially improve” your home, according to the IRS. If you use the funds for anything else (like debt consolidation or college tuition), it won’t be deductible.
Offers more flexibility than a home equity loan.
Cons
You run the risk of foreclosure if you can’t pay the loan.
A HELOC is not recommended if your income is unstable or if you won’t be able to afford payments if interest rates rise.
It may not be the best choice if you’re planning to move soon. One of the main benefits of a HELOC is its long borrowing and payment timeline, and you’ll have to pay it off entirely at the time of sale.
A HELOC might not be the most cost-effective option if you aren’t looking to borrow much money or plan to use it for basic needs, small purchases or major expenses that don’t improve your home (like a new car or vacation).
Is it better to get a home equity loan or line of credit?
Choosing between a HELOC and a home equity loan depends on your financial situation and needs. The main difference between the two loan products is that a HELOC is a line of credit that you can draw from as needed, while a home equity loan is a lump sum that you receive all at once.
This makes HELOCs more suited to borrowers who want flexibility, while a home equity loan could be a fit for a borrower who wants the full loan amount upfront.
Another key difference is that HELOCs typically have variable interest rates, while home equity loans have fixed interest rates. Some borrowers prefer home equity loans because the payments are fixed and predictable.
What to do if you can’t keep up with your HELOC payments
Because most HELOCs have an adjustable rate, it’s possible your payments could exceed what you’d originally planned. If you can’t pay back what you’ve withdrawn, the lender could foreclose on your home. This makes it important to act fast if there’s a problem. Reach out to the lender to understand your options, and consider refinancing to lower your rate or change your payment terms.
Frequently Asked Questions
Is a HELOC the cheapest way to borrow against your home equity?Is a HELOC the cheapest way to borrow against your home equity?
Typically, yes. HELOC closing costs can be lower than what you’d pay on a home equity loan or cash-out refinance. Some HELOC lenders don’t charge closing costs at all, though this can mean agreeing to keep your account open for a certain amount of time. If you close the account early, you could face some expensive penalties, including prepayment fees and other charges.
Is there a downside of having a HELOC?Is there a downside of having a HELOC?
The main downside of a HELOC is that it’s backed by your home, meaning you risk losing it if you can’t make your payments. HELOCs also typically come with variable rates that can fluctuate over time. And while most HELOCs only require you to pay interest during your draw period, you might get hit with some repayment shock once that interest-only period ends and the principal balance comes due.
How does a HELOC affect your credit score?How does a HELOC affect your credit score?
Like any line of credit, a new HELOC on your report will likely reduce your credit score temporarily. However, if you borrow responsibly — making timely payments and not utilizing the full credit line — your HELOC could help you build your credit score over time.
What can you do if you can't keep up with your HELOC payments?What can you do if you can't keep up with your HELOC payments?
If you think you might miss a HELOC payment, contact your lender right away to see what options are available to you. For example, you might qualify for a short-term repayment plan or be able to defer your payments for a limited time, depending on the lender. You could also consider refinancing to lower your rate or change your payment terms for a more long-term solution.
