How a HELOC Works
A Home Equity Line of Credit (HELOC) lets you borrow against the equity in your home, similar to a credit card. It has two phases: a draw period where you can borrow and typically make interest-only payments, followed by a repayment period where you pay back both principal and interest. Most lenders allow you to borrow up to 85% of your home's value minus what you owe.
Frequently Asked Questions
What happens when the draw period ends?â–¾
When the draw period ends, you can no longer borrow from the line. Your payments switch from interest-only to fully amortized principal and interest payments. This typically causes a significant increase in your monthly payment, which catches many borrowers off guard.
Is a HELOC rate fixed or variable?â–¾
Most HELOCs have variable interest rates tied to the prime rate. This means your payments can increase if rates rise. Some lenders offer a fixed-rate conversion option that lets you lock in a rate on a portion of your balance.
How is HELOC interest different from a home equity loan?â–¾
A home equity loan gives you a lump sum at a fixed rate with predictable payments from day one. A HELOC is a revolving line of credit with a variable rate. HELOCs offer more flexibility but less payment predictability.
Can I deduct HELOC interest on my taxes?â–¾
HELOC interest may be tax-deductible if the funds are used to buy, build, or substantially improve the home that secures the loan. Interest on funds used for other purposes (e.g., debt consolidation, vacation) is generally not deductible. Consult a tax professional for your specific situation.
Calclypso Editorial Team
Reviewed by certified financial professionals. Last updated: April 2026. HELOC calculations assume a fixed rate for estimation purposes. Actual variable-rate HELOCs will have fluctuating payments.