How it works
Your equity is what your home is worth minus what you owe on it. Lenders usually let you borrow against only part of it:
Most you can borrow = home value × lender's limit − mortgage balance
A HELOC works like a credit card secured by your home. During the draw period you can borrow and repay as you go, and many lines only require interest. When the draw period ends, you repay the balance with principal and interest, so the payment usually jumps.
Worked example
Your home is worth $450,000 and you owe $250,000, so you have $200,000 of equity. With an 80% limit, loans on the home can total $360,000, which leaves room to borrow up to $110,000.
Draw $50,000 at 8.5% and the interest-only payment is $354.17 a month for 10 years. Then it rises to $433.91 a month for 20 years. If you only paid interest during the draw, total interest comes to $96,639.
Things to know
- Your home is the collateral. If you can't repay, you could lose it. Borrow for things that add lasting value, not everyday spending.
- Rates usually float. A variable rate means your payment can rise. Some HELOCs let you lock part of the balance at a fixed rate.
- Plan for the payment jump when the draw period ends, or pay down principal early.
- A home equity loan is the alternative: one lump sum at a fixed rate, repaid in equal payments like a mortgage.
Questions people ask
Is a HELOC better than a cash-out refinance?
A HELOC leaves your first mortgage untouched, which helps if its rate is low. A cash-out refinance replaces it with a bigger loan at today's rate. Compare the numbers with the refinance calculator.
Should I use home equity to pay off credit cards?
It can cut the interest rate a lot, but it turns unsecured debt into debt secured by your home. It only works if the cards stay paid off. The credit card payoff calculator shows the alternative.
Sources
- Consumer Financial Protection Bureau: what is a home equity line of credit (HELOC)?
- Consumer Financial Protection Bureau: what you should know about home equity lines of credit (brochure)
- Consumer Financial Protection Bureau: home equity loan vs. HELOC
Reviewed September 26, 2026 by The Dollars World team. How we build and check our calculators · Our data and formulas. This is general information, not financial advice.