What is a HELOC? A Plain-English Guide to Home Equity Lines of Credit

You've been paying your mortgage for years. With every payment, you've built something valuable: equity. Now you're wondering how to actually use it.

A HELOC—short for Home Equity Line of Credit—lets you borrow against the equity you've already built in your home. Think of it as a financial tool that turns your home's value into accessible cash, without selling or refinancing.

By the end of this guide, you'll understand exactly how HELOCs work, what it takes to qualify, and whether one makes sense for your situation. No jargon. No confusion. Just clear answers.

---

HELOC Explained: What It Actually Means

A HELOC is a revolving line of credit secured by your home. Instead of getting a lump sum like a traditional loan, you get access to a credit line that you can draw from as needed—kind of like a credit card, but with much lower interest rates because your home backs it up.

Here's the key concept: you're borrowing money you've already earned. Every mortgage payment you've made (plus any increase in your home's value) has built equity. A HELOC lets you access that equity without selling your house.

How Much Can You Borrow?

Most lenders let you borrow up to 80-85% of your home's value, minus what you still owe on your mortgage.

Quick example:

• Home value: $500,000
• Mortgage balance: $300,000
• Available equity at 80% LTV: $100,000

That $100,000 becomes your HELOC credit limit. You don't have to use it all—you only pay interest on what you actually borrow.

---

How Does a HELOC Work? The Two-Phase System

Unlike a traditional loan where you get money once and pay it back, a HELOC operates in two distinct phases:

The Draw Period (5-10 Years)

This is when your HELOC is "open." During this time, you can:

• Borrow up to your credit limit whenever you need
• Pay back what you borrowed and borrow again
• Make interest-only payments (keeping monthly costs low)

Many people use only a fraction of their available credit during this phase. That's fine—the flexibility is the point.

The Repayment Period (10-20 Years)

Once the draw period ends, your HELOC enters repayment. At this point:

• You can no longer borrow against the line
• You pay back the principal plus interest
• Monthly payments will increase

Important: Know when your draw period ends. The shift to repayment means higher monthly payments—plan for it.

---

HELOC Interest Rates: What to Expect

Most HELOCs have variable interest rates tied to the prime rate. When the prime rate goes up, your HELOC rate (and monthly payment) goes up too.

Current Rate Environment

HELOC rates typically run 1-2% above prime. As of early 2026, that puts most HELOC rates in the 8-10% range—significantly lower than credit cards (18-25%) or personal loans (10-15%).

Rate Caps and Protections

Most HELOCs include rate caps that limit how high your rate can go:

• Periodic cap: Limits how much your rate can change at once
• Lifetime cap: Sets the maximum rate over the life of the loan

Always ask about caps before signing. They're your protection against rate spikes.

Fixed-Rate Options

Some lenders offer the ability to lock in fixed rates on portions of your balance. If predictability matters more than potentially lower variable rates, ask about this option.

---

HELOC Requirements: Can You Qualify?

Getting approved for a HELOC depends on four main factors:

1. Home Equity

You typically need at least 15-20% equity remaining after the HELOC. If your home is worth $400,000, you need at least $60,000-$80,000 in equity to stay after borrowing.

2. Credit Score

Most lenders want a score of 620 or higher. But here's the reality:

• 620-679: You'll likely qualify, but expect higher rates
• 680-739: Good rates available
• 740+: Best rates and terms

3. Debt-to-Income Ratio

Lenders look at your monthly debt payments compared to your gross income. Most want this ratio under 43%, though some allow up to 50%.

4. Income Verification

You'll need to prove stable income through pay stubs, tax returns, or bank statements.

HonestCasa note: We use a soft credit pull to check your eligibility first—no impact to your credit score until you decide to move forward.

---

What Can You Use a HELOC For?

Here's a truth that surprises many homeowners: some lenders restrict how you can use HELOC funds. They might push you toward "approved" uses like home improvements while discouraging others.

At HonestCasa, we believe it's your equity. Here's what people commonly use HELOCs for:

Home Improvements

The most popular use. Kitchen remodels, bathroom updates, new roof, HVAC replacement—improvements that often increase your home's value while you enjoy them.

Debt Consolidation

Replacing 22% credit card debt with 8% HELOC debt can save thousands and simplify your finances. Just don't rack up the cards again.

Emergency Fund

Some people open a HELOC and never touch it—it's there if they need it. You pay nothing until you actually borrow.

Major Expenses

Education costs, medical bills, wedding expenses—life's big moments that don't fit on a credit card.

Investment Property Down Payment

Using your primary home's equity to buy a rental or second property. Higher risk, higher potential reward.

The bottom line: It's your money. Use it responsibly for whatever matters most to you.

---

HELOC Pros and Cons

Let's be honest about both sides:

Pros

Lower rates than unsecured borrowing. Your home as collateral means lenders offer better rates than credit cards or personal loans.

Borrow only what you need. Unlike a lump-sum loan, you pay interest only on what you actually use.

Potential tax benefits. Interest may be tax-deductible if you use the funds for home improvements. (Talk to a tax professional for your situation.)

Keep your existing mortgage rate. If you locked in a low rate years ago, a HELOC lets you access equity without giving that rate up.

Flexibility. Draw, repay, draw again. Life is unpredictable—your credit line doesn't have to be.

Cons

Your home is collateral. This is the big one. If you can't make payments, you risk losing your home. Borrow responsibly.

Variable rates can rise. Your payment today might not be your payment tomorrow. Budget conservatively.

Temptation to overborrow. Easy access to money can lead to debt you didn't need. Have a plan before you draw.

Closing costs. Most HELOCs involve appraisal fees, origination fees, and other closing costs. Usually lower than a full refinance, but not free.

---

HELOC vs. Other Options

A HELOC isn't the only way to tap your equity. Here's how it compares:

HELOC vs. Home Equity Loan

Read more: HELOC vs. Home Equity Loan: Which Is Right for You?

HELOC vs. Cash-Out Refinance

HELOC vs. Personal Loan

---

Is a HELOC Right for You?

A HELOC makes sense if you can check most of these boxes:

• ✅ You have at least 15-20% equity in your home
• ✅ You have a specific purpose for the funds (not just "because I can")
• ✅ Your budget can handle potential payment increases
• ✅ You prefer flexibility over a one-time lump sum
• ✅ You want to keep your current mortgage rate

A HELOC might not be right if:

• ❌ You're already stretched thin on monthly payments
• ❌ You don't have a clear plan for the money
• ❌ You'd be tempted to use it for everyday expenses
• ❌ You're uncomfortable with any risk to your home

Be honest with yourself. A HELOC is a powerful tool, but only if used intentionally.

---

How to Get a HELOC

The traditional HELOC process takes 30-45 days and involves mountains of paperwork. It doesn't have to be that way.

The Typical Process

1. Application — Fill out forms, provide documentation
2. Credit check — Hard pull on your credit
3. Appraisal — Determine your home's current value
4. Underwriting — Lender reviews everything
5. Closing — Sign paperwork, get access to funds

The HonestCasa Way

We've streamlined it:

1. Check eligibility (2 minutes) — Soft pull, no credit impact
2. Get matched — We connect you with the right lender from our 200+ network
3. Appraisal & underwriting — We keep things moving
4. Close — As fast as 7 days

No jumping through hoops. No waiting weeks for answers. Real humans guiding you through.

→ Check your HELOC eligibility in 2 minutes

---

HELOC FAQs

How long does it take to get a HELOC?

Traditional lenders take 30-45 days. With HonestCasa, you can close in as few as 7 days.

What credit score do I need for a HELOC?

Most lenders require 620 minimum. For the best rates, aim for 740+.

Is HELOC interest tax deductible?

It can be—if you use the funds for home improvements. The Tax Cuts and Jobs Act of 2017 limited the deduction to "buy, build, or substantially improve" your home. Consult a tax professional for your specific situation.

Can I pay off a HELOC early?

Yes. Most HELOCs allow early payoff without penalty, though some charge fees if you close the line within the first few years. Always check your terms.

What happens to my HELOC if I sell my house?

Your HELOC must be paid off when you sell—it comes out of your proceeds at closing, just like your mortgage. You can't transfer a HELOC to a new property.

Can I get a HELOC with bad credit?

It's harder, but possible. You'll likely face higher rates and stricter terms. Some lenders specialize in lower credit scores—HonestCasa can help you find them.

How is a HELOC different from a second mortgage?

A HELOC is a type of second mortgage—it's a loan secured by your home that sits behind your primary mortgage. "Second mortgage" is the category; "HELOC" is a specific type (revolving credit line versus lump sum).

---

The Bottom Line

A HELOC turns the equity you've built into flexible, accessible cash—without selling your home or giving up your existing mortgage rate. It's not free money (you're borrowing against what you've earned), but used wisely, it's one of the most affordable ways to fund home improvements, consolidate debt, or handle life's big expenses.

The key is going in informed. Now you know how HELOCs work, what it takes to qualify, and how to decide if one's right for you.

Ready to see what you qualify for?

→ Check your HELOC eligibility — 2 minutes, no credit impact

---

Have questions? Our team is here to help. No pressure, no jargon—just straight answers about your options.