What is a HELOC?

What is a HELOC?

A HELOC (home equity line of credit) is a revolving form of credit with a variable interest rate, similar to a credit card. The line of credit is tied to the equity in your home. You can borrow money from your home equity and repay funds on an as-needed basis during a specified period of time. After that, you’ll pay back the amount you borrowed in installments.

Your home is the collateral for the line of credit, which means falling behind on payments puts your home at risk of foreclosure.

How does a HELOC work?

When you’re approved for a HELOC, you’ll receive a credit limit based on your available home equity. Borrowers can usually tap up to 80 percent of their home’s value — though some lenders allow as much as 85 or 90 percent — minus outstanding mortgage balances.

During an initial draw period, you can spend the funds using dedicated checks, a draw debit card or online transfer — up to your limit. You’ll need to make monthly interest payments on the amount you borrow, but if you also pay back your HELOC balance, the funds will be replenished, and you can borrow them again — or keep your costs down in the repayment period. This draw period typically lasts 10 years.

After that, you’ll enter a repayment period, during which you’ll no longer be able to access funds and instead need to repay any outstanding principal and interest. Most HELOC plans allow you to repay the remaining balance over a period of 10 years to 20 years. Some lenders also provide the option to refinance your HELOC once the repayment term ends.

How HELOC interest rates work

The interest rate on a HELOC is variable — that is, it changes periodically, moving up or down in accordance with benchmarks like the U.S. prime rate, an average derived from the amount individual banks charge their most creditworthy customers. The prime rate, in turn, is based on the federal funds rate, the rate that banks charge other banks for short-term loans.

The interest rate on a HELOC is typically the prime interest rate plus several percentage points. Add in any fees, and you’ll reach the annual percentage rate (APR), which is the actual cost to borrow.

The variable interest rate means the minimum required payment on your HELOC can change from month to month. Some lenders, however, allow borrowers to convert a portion of the outstanding variable-rate balance on a HELOC to a fixed interest rate, which makes payments predictable. This can typically be done any time during the HELOC’s draw period.

It’s also possible to obtain a fixed-rate HELOC, meaning the interest rate you pay on money borrowed remains the same for the entire term of the loan.

Qualifying for a HELOC

There’s no one-size-fits-all set of HELOC qualification requirements. That said, the criteria commonly include:

• Significant home equity stake: Lenders typically require homeowners to have at least 15 percent to 20 percent equity in the home.
• Good credit score: Homeowners generally need a credit score in the mid-600s — at least — to qualify for a HELOC. You could conceivably be approved with a lower score, but you’ll likely pay a higher interest rate.
• Low DTI ratio: Many lenders want to see a debt-to-income (DTI) ratio of 43 percent or less. This means your monthly obligations eat up less than half of your monthly income. However, certain lenders might approve you with a DTI ratio of up to 50 percent.

Limited spots available

Help us shape the future of personal finance

We’re building something new to make rate shopping smarter and simpler. Join our waitlist to get early access, share your feedback, and unlock exclusive offers.

Priority rate alerts

Exclusive member offers

Time saving

Email address

Join early access

Please provide a valid email address

Limited spots remaining

By proceeding, I agree to Bankrate’s Privacy Policy

What is the process for getting a HELOC?

Applying for a HELOC is similar to applying for a mortgage, albeit a bit simpler and cheaper. The process basically goes like this:

• Review and strengthen your credit. A strong credit score, ideally in the 700s, will get you the most favorable rate and terms. To improve your credit, make all payments on time — catching up on any past-due ones — and try to settle, or at least pay down, any outstanding balances. Review your credit report to correct any errors. Do all this several months before you actually apply.
• Find a HELOC lender. Even a small difference in interest rate can save you thousands in the long run, so it pays to shop around and compare offers before choosing a lender. “Comparison-shop with at least three lenders and before choosing one, make sure you consider all of the loan costs, not just one aspect, like the closing costs or interest rate,” says Linda Bell, senior writer on Bankrate’s Home Lending team. “Knowing all of the costs upfront can help you plan your budget and avoid any nasty surprises down the road.” Don’t commit to a lender until you’re crystal clear on what they charge, such as annual maintenance charges and early closure fees.
• Apply for the HELOC. Depending on your lender, you can do this in several ways: in person, over the phone or online. Just like applying for a mortgage, you’ll need to fill out a lot of forms and submit various documents to get a HELOC. Be prepared to provide proof of income — like pay stubs, W-2s or tax returns — bank statements and retirement account or brokerage statements. You’ll typically need to provide information about your mortgage and other property-related financial commitments, including recent mortgage statements and proof that you’ve paid your property taxes and homeowners insurance.
• Hurry up and wait. The lender will order an appraisal of your home to determine its current value. The appraiser’s assessment of overall home worth determines how much equity you have available, which helps set the size of your line of credit. Your lender might get back to you with a preapproval or an initial decision within days; some financial institutions, though, require you to wait until the whole underwriting process is done.

How long does it take to get a HELOC?

HELOC approval timelines vary by lender, but in most cases, the entire process takes two to six weeks. Navy Federal Credit Union, one popular lender, says it takes 30 to 40 days to close on a HELOC after receiving your application. After closing, you should be able to access the funds in three business days, which is standard.

If you work with an online lender, rather than a traditional bank or credit union or a brick-and-mortar mortgage company, the process often moves more quickly. Rate claims it can approve HELOC applications in as little as five minutes and provides access to the line of credit within five days. Better says it can close on a HELOC in as little as three days and fund them within a week. Usually these speedy results are contingent on the applicant having all their required paperwork in order and uploading it promptly.

How much can you borrow with a HELOC?

The amount you can borrow with a HELOC depends on several factors, including your creditworthiness, the value of your home and of your equity stake, and your loan-to-value ratio (LTV) — the sum total of all your home-based debt relative to your home’s value. Typically, lenders will allow you to borrow up to 80 to 90 percent of your home equity.

For example, if your home is valued at $300,000 and your mortgage balance is $200,000, you have $100,000 in equity. If the lender demands you keep 20 percent of that stake untapped, you could have a line of credit of $80,000.

You don’t usually have to use the full amount of your HELOC all at once. You can choose to spend part of your allowable credit, and the remaining amount will still be available for you to use in the future. For instance, if you have $100,000 in available credit and use only $65,000, you’ll still have $35,000 left in your credit line. You’re required to pay back only the portion of credit you use.

What borrowers should know about HELOCs today

After more than a decade of decline, HELOC balances are climbing, growing by $9 billion in the second quarter of 2025. That’s the 13th consecutive quarterly increase since the first quarter of 2022.

HELOCs’ appeal largely lies in their flexibility: Akin to a giant credit card, the funds can be tapped gradually, on an as-needed basis. Borrowers can take out only what they require and pay interest only on what they use.

Also adding to their appeal in the last several months: They’ve gotten less expensive. Rates began retreating consistently last autumn and, as of October 2025, are under 8 percent — a big decline from last September’s 10-percent rates — spurred on by Federal Reserve rate cuts. Some experts anticipate HELOC rates falling even further in 2025.

Whatever their rate, HELOCs also tend to be less expensive than other forms of consumer debt, like credit cards and personal loans. And, unlike a cash-out refinance — the old go-to way to tap a homeownership stake — HELOCs allow a homeowner to hang onto a mortgage with a low interest rate. Still, it’s important to ensure you don’t get in over your head with a HELOC.

“Maximize your HELOC by reviewing your balance during the draw period to make sure you aren’t overspending,” Bell says. “To manage payments effectively, you can explore options such as interest-only payments or fixed-rate conversions. By incorporating HELOC payments into your long-term financial plan, you can protect your financial well-being and keep your home safe from potential risks.”

What are the pros and cons of a HELOC?

HELOCs have various advantages and disadvantages.

FAQ

• Is it better to get a HELOC or a home equity loan?

  It depends on your goals. A HELOC could be better than a home equity loan if you want a source of funds you can access on an as-needed basis. The line-of-credit arrangement also means you’ll pay interest only on the amount you borrow, at least initially. With a home equity loan, you’ll be responsible for interest on the entire loan balance, even if you don’t use all the funds. If you’re planning to cover a significant but indeterminate expense in the near future and want to have a pool of cash readily available, a HELOC might also be the better choice. That’s only if you don’t mind a variable interest rate — unless your lender offers a fixed-rate option.

• How does a HELOC affect your credit score?

  Your lender will conduct a hard credit check when you apply for a HELOC, which can cause a slight, temporary decrease in your credit score. This type of credit check typically stays on your credit reports for two years, though it might only impact your credit score for up to a year. Apart from that, the way you use and repay your HELOC could impact your score. Borrowing against a HELOC can increase your credit utilization ratio, which factors into your credit score. A higher credit utilization ratio could result in a lower credit score. That said, paying down your HELOC over time could help you build credit.

• What fees do HELOCs have?

  The cost of a HELOC can vary depending on the lender, the terms of the loan, interest rates and the amount borrowed. And then there are closing costs: origination fees, application fees, appraisal fees. Some HELOCs also carry annual fees, a charge for locking in your interest rate, and an early termination penalty, if you close the credit line within a year or two of opening it or before the repayment period ends.

  You can get a sense of these fees’ cumulative costs by comparing a HELOC’s current interest rate with its current annual percentage rate, or APR. The APR factors in both interest and other charges. Sometimes the difference can be a full percentage point or even more.

Additional reporting by Taylor Freitas