Guide
How does a HELOC work?
A HELOC (home equity line of credit) is a revolving credit line secured by your home. You draw from it as needed during a draw period (often 10 years, interest-only), then repay the balance with principal and interest during a repayment period (often 10–20 years). The rate is usually variable.
The two phases of a HELOC
Unlike a regular loan, a HELOC works in two stages. Understanding them is the key to understanding the whole product.
1. The draw period
For roughly the first 10 years you can borrow against the line up to your approved limit, repay, and borrow again — like a credit card secured by your house. Most lenders require only interest-only payments during this phase, which keeps payments low.
2. The repayment period
Once the draw period ends you can no longer borrow. The outstanding balance is amortized over the repayment period, so your payment now includes principal plus interest. This is why a HELOC payment often jumps sharply when repayment begins.
How much can you borrow?
Lenders cap your combined loan-to-value (CLTV)— your mortgage plus the new line — at about 80–90% of your home’s value. So your limit is roughly the home’s value times that percentage, minus what you still owe on the mortgage. Learn more in our guide to combined loan-to-value (CLTV), or estimate your own limit with the how much HELOC can I get calculator.
What a HELOC costs
HELOCs usually carry a variable interest rate based on the prime rate plus a margin, so the cost moves with the market. Closing costs are typically low or waived. To see how the two payment phases look for your balance, use the HELOC payment calculator.
HELOC vs. other ways to tap equity
A HELOC is one of three common options. A home equity loan gives a fixed lump sum at a fixed rate; a cash-out refinance replaces your whole mortgage with a larger one. A HELOC fits best when your needs are ongoing or uncertain and you want to pay interest only on what you actually use.
Frequently asked questions
How does a HELOC work in simple terms?+
A HELOC is a revolving credit line secured by your home. The lender approves a maximum based on your equity, and during the draw period you borrow and repay as needed — usually paying interest only. After the draw period ends, you can no longer borrow and must repay the balance (principal plus interest) over the repayment period.
How long is a HELOC draw period?+
Most HELOC draw periods last about 10 years, followed by a repayment period of roughly 10 to 20 years. Terms vary by lender.
Is a HELOC interest rate fixed or variable?+
Most HELOCs have a variable rate tied to the prime rate, so your payment can rise or fall over time. Some lenders let you lock a fixed rate on part of the balance.
Can you pay off a HELOC early?+
Usually yes. Most HELOCs let you repay early, though some charge an early-closure fee if you close the line within the first few years. Check your lender's terms.
Run the numbers
See exactly how much you could borrow with our free HELOC calculator.
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Last reviewed June 2026.