How a HELOC works
A Home Equity Line of Credit (HELOC) is a revolving credit line secured by your home. Unlike a home equity loan where you get a lump sum upfront, a HELOC works more like a credit card — you borrow what you need, when you need it, up to an approved limit. You only pay interest on the amount you've actually borrowed.
Two phases
A HELOC has two distinct periods:
- Draw period (5–10 years): You can borrow from the line as needed. Most lenders require interest-only payments during this phase, keeping monthly payments low. However, since you're not paying down principal, the full balance remains owed.
- Repayment period (10–20 years): The line closes to new borrowing, and you begin paying back both principal and interest. Monthly payments are significantly higher because you're amortizing the full balance over a shorter term.
How much can you borrow?
Most lenders allow a maximum HELOC of 85% of your home's value minus your mortgage balance. This calculator shows your available credit based on this rule. For example, a $400,000 home with a $250,000 mortgage: 85% × $400k = $340k, minus $250k = $90k maximum HELOC.
Variable interest rates
HELOCs typically have variable rates tied to the Prime Rate. This means your rate — and payments — can change over time. When budgeting, consider testing higher rate scenarios to make sure you can afford payments if rates rise.
Important: payment shock
The biggest surprise for HELOC borrowers is the transition from interest-only payments to full amortization. A $50,000 HELOC at 8.5% might cost $354/month during the draw period (interest only) but jumps to $497/month during repayment. Plan for this increase from the start.
Related calculators
Compare whether to use a HELOC or keep saving with the compound interest calculator. For your primary mortgage, try the mortgage payoff calculator or rent vs buy calculator. See your full debt picture with the debt payoff calculator.
Frequently asked questions
- What is a HELOC?
- A revolving line of credit secured by your home's equity. You borrow what you need and pay interest only on the amount used.
- How much can I borrow?
- Typically up to 85% of your home's value minus your mortgage balance. This calculator calculates your limit automatically.
- What happens when the draw period ends?
- You can no longer borrow, and monthly payments switch to fully amortizing (principal + interest) until the balance is paid off.
- Is HELOC interest tax-deductible?
- May be, if you use funds to buy, build or improve the securing home. Consult a tax professional for your situation.