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A HELOC calculator is a financial tool that estimates how much you can borrow through a Home Equity Line of Credit and what your monthly payments might look like during different phases of the loan. The calculator typically requires four basic inputs: your home's current market value, your remaining mortgage balance, your credit score, and the amount you want to borrow. With this information, it calculates your available equity, your combined loan-to-value ratio, and provides estimated monthly payments based on current interest rates.
The reason these calculators matter right now is timing. As of November 6, 2025, the national average HELOC rate sits at 7.64 percent according to Curinos analytics data. That's down from higher levels earlier this year, following the Federal Reserve's October rate cut that brought the prime rate down to 7.00 percent. When you compare that to credit card interest rates, which typically run around 16 percent or higher, accessing your home equity suddenly looks a whole lot more attractive for consolidating debt or funding major expenses.
Here's what most calculators show you: your maximum available credit line (usually 80 to 90 percent of your home's value minus what you owe), your estimated interest-only payment during the draw period, your estimated principal and interest payment during the repayment period, and your combined loan-to-value ratio. Some advanced calculators also show you how different interest rates would affect your payments, which matters because HELOCs have variable rates that can change over time.
Let me walk you through exactly how to use a HELOC calculator to get accurate results. I'm going to use real numbers here so you can follow along with your own situation.
First, you need your home's current market value. This isn't what you paid for it or what you think it's worth based on that house down the street that sold last month. You can get a rough estimate using online home value estimators, but understand that lenders will order their own appraisal or use an Automated Valuation Model when you actually apply. For this example, let's say your home is worth $450,000.
Next, enter your current mortgage balance. Pull up your most recent mortgage statement and look for the principal balance, not the original loan amount. If you took out a $350,000 mortgage five years ago, you've probably paid down some principal. Let's say your current balance is $290,000. This means you have $160,000 in equity ($450,000 home value minus $290,000 mortgage balance).
Now here's where it gets interesting. Most lenders will let you borrow up to 80 to 90 percent of your home's value, but that includes your existing mortgage. So we calculate your combined loan-to-value ratio. At 80 percent CLTV on a $450,000 home, you can have total loans of $360,000. Subtract your existing $290,000 mortgage, and you have approximately $70,000 available to borrow through a HELOC. At 90 percent CLTV (which some lenders offer with excellent credit), you'd have $405,000 in total allowable loans, meaning $115,000 available.
Your credit score matters tremendously here. Enter your actual FICO score if you know it. Borrowers with scores above 740 typically qualify for the best rates. Those between 680 and 739 will pay a bit more, and borrowers between 620 and 679 will see higher rates still. Below 620, most lenders won't approve a HELOC at all. Let's assume you have a 720 credit score for this example, which puts you in good standing.
Finally, enter how much you actually want to borrow. Just because you can access $70,000 doesn't mean you should max it out. Let's say you need $50,000 for a kitchen renovation and to consolidate some credit card debt. The calculator will now show you several critical numbers.
For a $50,000 HELOC at the current national average rate of 7.64 percent, your monthly interest-only payment during the draw period would be approximately $318. Here's the math: $50,000 times 0.0764 equals $3,820 in annual interest. Divide that by 12 months and you get $318 per month. That's it during the draw period, which typically lasts 10 years. You're only paying the interest, not reducing the principal balance unless you choose to.
But wait, there's more (I know, I know). The calculator should also show you what happens when you enter the repayment period. After your 10-year draw period ends, you'll enter a 20-year repayment period where you must pay back both principal and interest. That same $50,000 balance at 7.64 percent over 20 years would require monthly payments of approximately $418. That's $100 more per month than you were paying during the draw period.
Here's a common mistake I see borrowers make: they only look at the draw period payment and don't prepare for the repayment period increase. Plan your budget for the higher payment now so you're not shocked later.
So I was talking to a borrower yesterday who said, "Jerrie, I don't really understand what equity even is." Let me paint you a picture that makes this crystal clear. Your home equity is simply the portion of your home that you actually own outright. If your home is worth $400,000 and you owe $250,000 on your mortgage, you own $150,000 worth of that house. That's your equity. It's the difference between your home's current market value and what you still owe to your lender.
Equity builds in two ways: through paying down your mortgage principal and through home price appreciation. Every mortgage payment you make includes some principal (unless you have an interest-only loan), which increases your equity. According to Federal Reserve data, U.S. homeowners collectively held approximately $35 trillion in total home equity as of the second quarter of 2025. That represents a massive increase from around $20 trillion at the beginning of 2020. Home values rose rapidly during and after the pandemic, creating unprecedented equity growth.
HELOCThe Mortgage Bankers Association's 2025 Home Equity Lending Study shows that totaland home equity loan originations increased 7.2 percent in 2024, with total debt outstanding growing 10.3 percent. With close to $35 trillion in total homeowner equity and many homeowners locked into low-rate first mortgages from 2020 and 2021, HELOCs have become the product of choice for accessing equity without refinancing the entire mortgage at today's higher rates.
A Home Equity Line of Credit works very differently from a traditional home equity loan. Think of a home equity loan as a second mortgage where you get a lump sum upfront and make fixed monthly payments over a set term, usually 10 to 20 years. The interest rate is fixed, your payment never changes, and you're paying interest on the entire loan amount from day one, whether you've used all the money or not.
A HELOC, on the other hand, works more like a credit card backed by your home. You're approved for a maximum credit line, let's say $75,000. But you only draw what you need, when you need it. If you only take out $30,000, you only pay interest on $30,000, not the full $75,000. You can pay it back and borrow again during the draw period. This flexibility is exactly why HELOC originations have increased, especially as homeowners realize they can keep their low first mortgage rates intact while accessing equity for renovations, debt consolidation, or other needs.
The HELOC structure has two distinct phases: the draw period and the repayment period. The draw period typically lasts 10 years, though some lenders offer 5 or 15 years. During this time, you can withdraw money up to your credit limit, pay it back, and withdraw again. Your minimum monthly payment is usually just the interest on whatever you've borrowed. Many borrowers make interest-only payments during this phase to keep monthly costs low, though you can always pay down principal if you want to reduce your balance.
Once the draw period ends, you enter the repayment period, which typically lasts 20 years. During this phase, you can no longer draw additional funds. Your line of credit is closed, and you must begin repaying both the principal and interest on whatever balance remains. This is when your monthly payment increases, sometimes dramatically if you've been making minimum interest-only payments for 10 years.
Here's the part nobody talks about: the payment shock that hits when you transition from draw to repayment. If you've borrowed $60,000 and made only interest payments at 7.64 percent, you've been paying around $382 per month. When you enter the 20-year repayment period, that payment jumps to approximately $502 per month because now you're paying down the principal too. That's a 31 percent increase. If you haven't budgeted for this, it can create serious financial stress.
Between you and me, I always counsel borrowers to start making some principal payments during the draw period, even if it's just an extra $100 or $200 per month. This accomplishes two things: it reduces your balance before the repayment period starts, and it gets you accustomed to making higher payments so the transition isn't as jarring.
home equity loansThe variable interest rate structure is another critical characteristic of most HELOCs. Unlike fixed-rate , HELOC rates are tied to an underlying index, almost always the prime rate. As of November 2025, the prime rate is 7.00 percent following the Federal Reserve's October rate cut. Your lender adds a margin on top of the prime rate, typically 0.50 to 4 percentage points depending on your credit score, loan-to-value ratio, and the lender's pricing. So if the prime rate is 7.00 percent and your margin is 1.00 percent, your HELOC rate would be 8.00 percent.
When the Federal Reserve adjusts the federal funds rate, the prime rate usually changes by the same amount, and your HELOC rate adjusts accordingly. The October 2025 rate cut lowered rates by 25 basis points (0.25 percent), providing some relief to existing HELOC borrowers and making new HELOCs more attractive. The next Federal Reserve meeting is scheduled for December 9-10, 2025, and any decision there could impact HELOC rates within a month or two.
Most HELOCs have rate caps that limit how much your interest rate can increase. There's typically a lifetime cap, often around 18 percent but sometimes lower depending on state regulations, that prevents your rate from exceeding a certain level no matter what happens to the prime rate. Some HELOCs also have periodic adjustment caps that limit how much the rate can change in a single adjustment period.
This is where most borrowers' eyes start to glaze over. But stick with me because understanding exactly how your HELOC payment is calculated gives you power. You'll know whether the numbers your lender is giving you make sense, and you'll be able to run your own scenarios before you even apply.
During the draw period, calculating your interest-only payment is straightforward. Take your outstanding HELOC balance, multiply it by your annual interest rate, then divide by 12. That's your monthly payment. Let me show you with several real examples using the current national average rate of 7.64 percent.
For a $25,000 balance: $25,000 times 0.0764 equals $1,910 in annual interest. Divide by 12 and your monthly payment is approximately $159.
For a $50,000 balance: $50,000 times 0.0764 equals $3,820 annually, or about $318 per month.
For a $75,000 balance: $75,000 times 0.0764 equals $5,730 annually, or about $478 per month.
For a $100,000 balance: $100,000 times 0.0764 equals $7,640 annually, or about $637 per month.
Notice how the payment scales linearly with the balance. Double the balance, double the payment. This is because you're only paying interest, not reducing the principal. If your rate changes because the prime rate moves, your payment changes proportionally. If rates drop to 7.00 percent, that $50,000 balance would cost you about $292 per month instead of $318. If rates rise to 9.00 percent, you'd be paying $375 per month.
The repayment period calculation is more complex because now you're amortizing the loan, meaning you're paying it down over a set period with payments that include both principal and interest. The formula uses the standard amortization calculation that most mortgages use. Without getting into the heavy math, I'll show you what your payments would look like for different scenarios.
Using the same balances with a 7.64 percent rate over a 20-year repayment period
$25,000 balance: Monthly payment approximately $209. Over 20 years, you'd pay about $50,160 total, meaning $25,160 in interest.
$50,000 balance: Monthly payment approximately $418. Total paid over 20 years: $100,320, with $50,320 in interest.
$75,000 balance: Monthly payment approximately $627. Total paid: $150,480, with $75,480 in interest.
$100,000 balance: Monthly payment approximately $836. Total paid: $200,640, with $100,640 in interest.
Now let's look at how interest rate changes affect your repayment period payments. This matters because if you're entering the repayment period and rates have moved significantly from when you opened the HELOC, your payment will reflect the current rate.
For a $50,000 balance over 20 years at different rates
At 6.00 percent APR: Monthly payment approximately $358. Total interest over 20 years: $35,920.
At 7.00 percent APR: Monthly payment approximately $388. Total interest: $43,120.
At 7.64 percent APR (current average): Monthly payment approximately $418. Total interest: $50,320.
At 9.00 percent APR: Monthly payment approximately $450. Total interest: $58,000.
At 10.00 percent APR: Monthly payment approximately $483. Total interest: $65,920.
You can see how dramatically the interest rate affects both your monthly payment and the total interest you'll pay over the life of the repayment period. A 4 percentage point difference (from 6 to 10 percent) increases your monthly payment by $125 and adds $30,000 in total interest charges over 20 years on a $50,000 balance.
Here's a practical scenario. Let's say you opened a HELOC in 2022 when rates were lower, borrowed $60,000 during the draw period, and made interest-only payments for three years. Now it's 2025, you've entered the repayment period, and your rate is 7.64 percent. Your new monthly payment would be approximately $502 for the next 20 years. But let's say you made $10,000 in principal payments during the draw period, reducing your balance to $50,000 before entering repayment. Your payment would be $418 instead, saving you $84 every single month for 20 years. That's more than $20,000 in savings just from paying down $10,000 extra during the draw period.
The point I'm making here is that small decisions during the draw period have massive long-term financial implications. If you can afford to pay more than the minimum, do it. Your future self will thank you when that repayment period hits.
Let me give you one more calculation scenario that shows the real cost of a HELOC over its full 30-year life. Assume you borrow $50,000, make interest-only payments at 7.64 percent for 10 years during the draw period, then pay it back at the same rate over 20 years during the repayment period.
Draw period (10 years): Monthly payment of $318 for 120 months equals $38,160 total paid. Since you're not paying down principal, you still owe $50,000 at the end of the draw period.
Repayment period (20 years): Monthly payment of $418 for 240 months equals $100,320 total paid.
Total amount paid over 30 years: $138,480 for a $50,000 credit line. That means you paid $88,480 in interest over the life of the HELOC. Yes, you read that right. You paid nearly 1.8 times the original amount in interest charges.
Now compare that to paying an extra $200 per month toward principal during the draw period. You'd have the balance paid down to about $24,000 by the time the repayment period starts, cutting your total interest nearly in half. This is why I always encourage borrowers to treat the draw period as an opportunity to get ahead, not just minimize their monthly outflow.
You know what drives me crazy? When borrowers tell me they were turned down for a HELOC and they have no idea why. The qualification requirements aren't a mystery. Lenders look at three primary factors: your credit score, your available equity and loan-to-value ratio, and your debt-to-income ratio. Let me break down exactly what lenders want to see.
Credit score requirements vary by lender, but the general guidelines are consistent across the industry. Most lenders require a minimum credit score of 620 for HELOC approval. However, that 620 minimum doesn't mean you'll get a competitive rate. Borrowers with scores in the 620 to 679 range typically face higher interest rates, sometimes 2 to 3 percentage points above the best available rates. Your margin over the prime rate will be higher, meaning you'll pay more over the life of the credit line.
The sweet spot for HELOC qualification is a credit score of 740 or above. According to current market data, lenders reserve their best rates for borrowers with scores above 740 and lowest loan-to-value ratios. A borrower with a 780 credit score and 60 percent CLTV might get a rate 1.5 to 2 percentage points lower than a borrower with a 640 credit score and 85 percent CLTV. On a $50,000 balance, that difference costs you about $65 to $85 per month, or roughly $20,000 to $25,000 over the life of the loan.
If your credit score is below 740, there are steps you can take before applying. Pay down credit card balances to below 30 percent of your limits, which improves your credit utilization ratio. Make sure all your bills are current because recent late payments tank your score. Don't open new credit accounts in the months before applying because hard inquiries and new accounts temporarily lower your score. Check your credit reports from all three bureaus (Experian, Equifax, and TransUnion) and dispute any errors you find.
The combined loan-to-value ratio is the second major qualification factor. CLTV is calculated by adding your existing mortgage balance plus the requested HELOC amount, then dividing by your home's current value. Lenders typically allow CLTVs up to 80 to 90 percent, meaning you must maintain at least 10 to 20 percent equity in your home even after borrowing.
Here's the math using a real example. Your home is worth $500,000 and you owe $300,000 on your first mortgage. At 80 percent CLTV, the maximum total loan amount is $400,000 ($500,000 times 0.80). Subtract your existing $300,000 mortgage and you can borrow up to $100,000 through a HELOC. At 85 percent CLTV, you could borrow up to $125,000. At 90 percent CLTV, you could borrow up to $150,000.
Most lenders require home appraisals or automated valuation models to verify your home's value. According to the MBA's 2025 Home Equity Lending Study, 47 percent of 2024 originations used an Automated Valuation Model, 26 percent used a Desktop Valuation with either an exterior inspection or no inspection, and 24 percent required a full appraisal with interior and exterior inspection. The valuation method often depends on the loan amount and CLTV. Smaller loans with lower CLTV ratios might only need an AVM, while larger loans or higher CLTV ratios typically require full appraisals.
If the appraisal comes in lower than expected, it directly affects how much you can borrow. Let's say you thought your home was worth $500,000 but the appraisal comes in at $475,000. At 80 percent CLTV with a $300,000 first mortgage, your available HELOC drops from $100,000 to $80,000. This is why it's important to have realistic expectations about your home's value before applying.
Debt-to-income ratio is the third major qualification factor. DTI is calculated by dividing your total monthly debt payments by your gross monthly income. Lenders typically want to see DTI ratios at or below 43 percent, though some allow up to 50 percent for borrowers with strong credit scores and significant equity.
Here's how this works in practice. Let's say your gross monthly income is $8,000. Your existing debts include a $1,800 mortgage payment, a $400 car payment, $200 in student loan payments, and $150 in minimum credit card payments. Your total monthly debt is $2,550, giving you a DTI of 31.9 percent ($2,550 divided by $8,000). You're in good shape.
Now you want a $60,000 HELOC. During the draw period with interest-only payments at 7.64 percent, you'd add $382 per month to your debts. Your new total would be $2,932, increasing your DTI to 36.7 percent. Still acceptable to most lenders. However, when you enter the repayment period with a $502 monthly payment, your DTI would jump to 38.2 percent. Lenders consider this when evaluating your ability to handle the higher payment later.
If your DTI is already high, you might struggle to qualify even with excellent credit and substantial equity. This is where debt consolidation becomes relevant. If you're using the HELOC to pay off $20,000 in credit cards with $600 in minimum payments, your total monthly debt actually decreases even after adding the HELOC payment. You eliminate the $600 in credit card payments and add the $382 HELOC payment, netting a $218 monthly reduction.
Income verification is straightforward for W-2 employees. Lenders want to see recent pay stubs, typically the most recent two months, and your last two years of tax returns. They'll verify your employment directly with your employer. For self-employed borrowers, documentation requirements are more extensive. Lenders typically want two years of personal and business tax returns, profit and loss statements, and sometimes bank statements showing regular deposits. The self-employed income calculation is more conservative, usually taking the average of the last two years after adding back certain depreciation and amortization expenses.
Additional documentation required for most HELOC applications includes: proof of homeowner's insurance, recent mortgage statements showing payment history, government-issued photo identification, and sometimes proof of funds for closing costs. The underwriting process typically takes two to four weeks from application to closing, though this varies by lender and the complexity of your financial situation.
Okay, let's talk for real for a second. If you're thinking about getting a HELOC, now might be one of the best times in the last few months. Let me tell you what's going on in the market and why timing is important.
Curinos analytics data show that the national average HELOC rate is 7.64 percent as of November 6, 2025. That's down from 7.75 percent last week and is the lowest level seen in 2025 so far. The drop comes after the Federal Reserve cut the federal funds rate by 25 basis points on October 29, 2025. This directly affects HELOC rates because they are linked to the prime rate.
The prime rate, which is what most HELOCs use as their index, is now 7.00%. When the Federal Reserve changes the federal funds rate, banks usually change the prime rate by the same amount within a few days. The prime rate went down from 7.25 percent to 7.00 percent after the October rate cut. Lenders all over the country started lowering their HELOC rates as a result. A lot of big banks lowered their rates by a quarter point right after the prime rate went down.
You need to know where we've been to understand where we are now. To fight inflation, the Federal Reserve raised interest rates at the fastest rate ever in 2022 and 2023. The federal funds rate went from almost zero in early 2022 to a high range of 5.25 to 5.50 percent by mid-2023. The prime rate then went up from about 3.25% to 8.50% in the same time frame. As a result, HELOC rates went up, and by the end of 2023, the national average was over 9%.
In September 2024, the first rate cuts happened. More cuts happened in November and December 2024. In early 2025, there were no cuts because the Federal Reserve was looking at inflation data. The cut in October 2025 started the easing cycle again. The next meeting of the Federal Open Market Committee will be on December 9 and 10, 2025. The market thinks there might be another rate cut, but nothing is set in stone.
What does this mean for you as a loan taker? If you get a HELOC now at 7.64 percent and the Federal Reserve lowers rates again in December, your rate will probably drop by another 0.25 percent in a month or two, which will lower your monthly payment. If you have a $50,000 balance, a quarter-point drop in the rate will save you about $10 a month. That may not seem like much, but over the course of ten years, it adds up to $1,200 in savings without you having to do anything.
cash-out refinanceYou can see how much HELOCs are worth when you compare their rates to those of other loans. As of November 2025, the average APR on a credit card is about 16% or more. The interest rates on personal loans can be anywhere from 8% to 15%, depending on your credit score. At 7.64 percent, HELOCs are still much cheaper than most other ways to borrow money. Awould be the only cheaper option, but only if your current first mortgage rate is higher than 7%. It would be a bad idea to refinance your whole mortgage at 7 percent just to get equity if you locked in a 3 or 4 percent mortgage in 2020 or 2021.
HELOCequity loans roseThis is why there has been a big rise inactivity. The MBA's 2025 Home Equity Lending Study says that homeby 7.2% in 2024 compared to the year before. The study shows that lenders think HELOC debt will go up by almost 10% in 2025 and home equity loan debt will go up by 7%. According to data from the Federal Reserve, there is about $35 trillion in total homeowner equity. Many homeowners are stuck with low-rate first mortgages, so HELOCs have become the best way to get to that equity.
There are a number of things that affect the differences in rates across the country. Sometimes, state laws put limits on interest rates or add protections for consumers that change prices. Rates are affected by competition in the local market, as lenders try to get borrowers in certain areas. Your specific rate also depends on things like your credit score, your CLTV ratio, the amount of the loan, and whether you are already a customer of the lender.
As of November 2025, HELOC rates range from introductory rates as low as 5.99 percent (usually for the first 6 to 12 months before they change to variable rates) to around 11.10 percent for borrowers with lower credit scores or higher CLTV ratios. The difference between the best and worst rates is more than 5 percentage points, which means that payments can be very different. If you owe $50,000, the monthly payment at 5.99 percent would be about $250, and the payment at 11.10 percent would be about $463. That's a difference of $213 a month, or $2,556 a year.
If the Federal Reserve keeps cutting rates, experts in the field say that HELOC rates may keep going down slowly. The MBA's 2025 study found that lenders expect growth to continue in 2025 because homeowners want to keep their low first mortgage rates while getting equity. According to Marina Walsh, Vice President of Industry Analysis at the MBA, HELOCs and home equity loans have become the most popular products because there is almost $35 trillion in homeowner equity in residential real estate and many homeowners are stuck with low-rate first mortgages.
It is still not clear what will happen for the rest of 2025. The Federal Reserve will make decisions about policy based on inflation data, employment numbers, and the state of the economy as a whole. If inflation keeps falling toward the Fed's 2 percent target, more rate cuts are likely to happen. The Fed might stop cutting rates or even think about raising them again if inflation stays high or economic growth picks up unexpectedly. However, most economists think this is unlikely to happen in the near future.
If you're thinking about getting a HELOC, the variable rate structure means you can take advantage of future rate drops but are at risk if rates go up. If you're worried about rates going up, some lenders let you turn all or part of your HELOC balance into a fixed rate for a set amount of time. This makes payments more stable, but it also makes them less flexible. Most of the time, there is a small fee for each fixed-rate conversion. This fee can range from $15 to $50, depending on the lender.
In short? Not all ways to use HELOC money are the same. The MBA's 2025 Home Equity Lending Study gives real information about how borrowers are using their HELOCs and why they are changing. In 2024, home improvements made up 46% of HELOC volume, down from 56% in 2023 and 65% in 2022. In 2024, debt consolidation made up 39% of all transactions, up from 33% in 2023 and 25% in 2022. This change shows how credit card debt has become more expensive and burdensome in the current economy.
Home improvements and renovations are still the most common and often the best way to use HELOC funds. There's a practical reason for doing it besides making your home better. Improvements that make your home worth more also make the asset that backs up the HELOC worth more. If you borrow $40,000 to fix up your kitchen and bathrooms and those changes make your home worth $60,000 more, you've really increased your net equity by $20,000 while also making your home nicer.
Not all improvements give you the same return on your money. The National Association of Realtors and cost-versus-value analyses show that some projects consistently give good returns. When you sell a house, a small kitchen remodel usually gets back 72 to 85 percent of its cost. When you remodel a bathroom, you get back 60 to 70 percent of what you spent. Adding a deck will get you back about 65 to 75 percent. You can get back about 75% of the cost of replacing an entry door. These numbers aren't set in stone and can change from market to market, but they give you an idea of what to expect.
It also makes sense to replace major systems. These costs are not optional if your HVAC system breaks down, your roof needs to be replaced, or your foundation has problems. A HELOC with a 7.64 percent interest rate is a lot cheaper than using a credit card or personal loan with a high interest rate to pay for these necessary repairs. Also, according to current tax law, interest on HELOCs used to make major improvements to your main home may be tax deductible. However, you should talk to a tax professional about your particular situation.
The Tax Cuts and Jobs Act of 2017 changed the rules for deducting interest on home equity loans. Before 2017, homeowners could write off the interest on up to $100,000 of home equity debt, no matter how they used the money. This changed a lot with the law in 2017. Home equity interest can only be deducted if the money is used to "buy, build, or substantially improve" the home that secures the loan. For married couples filing jointly, the maximum amount of mortgage debt is $750,000. For single filers, it is $375,000.
In real life, this means that if you use your HELOC to fix up your kitchen, add a room, or replace your roof, you may be able to deduct the interest, but only up to the limits listed above. You can't deduct the interest if you use your HELOC to buy a car, go on vacation, or pay off credit cards. This doesn't mean that those uses are bad for your finances; it just means that you won't get a tax break for them.
Debt consolidation is the second most common use of HELOCs, and it has grown a lot as credit card rates have gone up. This is why it often makes sense mathematically. If you have $30,000 in credit card debt with an average interest rate of 18 percent and minimum payments of $750 a month, you're paying about $450 a month in interest and hardly touching the principal. If you only made the minimum payments, it would take you decades to pay it off.
If you put that $30,000 into a HELOC with a 7.64 percent interest rate, your monthly interest will go down to about $191. You're now paying $559 toward the principal every month instead of $300 if you keep making $750 monthly payments. You'd have the entire balance paid off in roughly 50 months instead of multiple decades, saving tens of thousands in interest charges.
The problem with debt consolidation is that it can change your behavior. If you pay off your credit cards with a HELOC and then use them again, you haven't fixed anything. You just added to your debt and made your home more likely to be lost. This has happened to me more times than I can count. You need to be disciplined and use the HELOC to pay off the cards. After that, you can either close the accounts or promise to pay them off in full every month from now on.
Using HELOCs to pay for school is a gray area that depends on your situation. It's clear that the interest rate is better than that of private student loans. Private student loans usually have interest rates of 8% to 12% or higher. A HELOC at 7.64% is cheaper. Federal student loans, on the other hand, offer protections that HELOCs don't, such as income-driven repayment plans, the chance to have your loan forgiven, and the ability to defer payments during times of financial trouble. You can change or pause your federal student loan payments if you lose your job. No matter what, you still have to pay your HELOC.
If you're thinking about getting a HELOC to pay for school, you should use up all of your federal student loans first because they offer more protection. If you need to help pay for your child's education but don't qualify for federal loans, HELOCs might be a good option for covering costs that go beyond federal loan limits. Just know that you're putting your home up as collateral for school loans.
Putting money down on an investment property is a more complicated use case that needs to be looked at carefully. If you want to buy a rental property, you need a $50,000 down payment. If you use a HELOC at 7.64 percent, you'll have to pay about $318 a month in interest only. If the rental property makes enough money to pay its own mortgage, operating costs, and your HELOC payment, plus some extra money, the investment might be worth it. This is especially true if the value of both properties goes up over time.
But the risks are very high. You're using one property to buy another, which means you have two real estate investments. You still have to make both mortgage payments even if the rental property is empty for months or property values go down. This plan is best for real estate investors who know how to manage properties, have money set aside for repairs and vacancies, and can make both payments even if the rental income stops for a while.
Now, let me tell you what you should never use a HELOC for. Using home equity for vacations, electronics, cars, and other things that lose value is a bad idea. This is why it makes me so mad when I see people do it. You're using your home, which is an asset that goes up in value, to buy things that lose value quickly. If you only made the minimum payments on that 60-inch TV you bought with your HELOC, it will be worthless in five years.
Think about how much it really costs. If you use a HELOC to pay for a $5,000 vacation at 7.64 percent, you'll pay about $32 in interest each month during the draw period. If you only pay interest for 10 years, that vacation will cost you $3,820 in interest. You still owe the $5,000 principal when you enter the repayment period. You'll pay it off with interest over the next 20 years. It cost you almost $13,000 and happened 30 years ago, so by the time you paid for it all, it was too late. Was it worth almost three times as much? I don't think it would be.
True emergencies are the only times this rule doesn't apply. A HELOC can help you pay for emergencies like your HVAC system breaking down in the summer, your car needing emergency repairs to get you to work, or unexpected medical bills. Just be smart about paying it back quickly instead of letting it sit for years.
Because borrowers ask me all the time which option is best, let me make this easier for you. The truth is that it all depends on your situation. Every product has pros and cons that make it better for some situations than others.
Some people call a home equity loan a second mortgage. You get a lump sum of money up front, usually between $10,000 and $250,000 or more, depending on how much equity you have and how qualified you are. The interest rate stays the same for the whole loan term, which is usually 10, 15, 20, or 30 years. Your monthly payment never changes, so it's easy to plan your budget. Your balance goes down steadily over time because you pay both the principal and the interest from the first payment.
Home equity loans are easy and predictable, which are two of their best features. No matter what happens to interest rates, your payment stays the same. You get all the money at once, which is great for one-time costs like a big renovation where you need to give contractors a certain amount. If interest rates go up after you borrow, the fixed rate will protect you.
Costs and lack of flexibility are the downsides. You have to pay interest on the whole loan amount from day one, even if you don't need all of the money right away. You're still paying interest on the full $50,000 even if you only use $30,000 in the first six months. If you need more money later, you can't just take it out without getting a new loan. The interest rate is usually a little higher than HELOC rates, by about 0.50 to 1.00 percent.
As we've talked about a lot, a HELOC gives you options. You can borrow money on credit, but only what you need when you need it. Interest only builds up on the amount you owe. During the draw period, you can pay it off and borrow more. This is a great option for projects with costs that aren't clear, projects that have multiple costs over time, or situations where you want to have money available for emergencies but might not need it.
The benefits are that you can be flexible, make smaller payments at first, and only pay interest on what you borrow. When rates are stable or going down, the interest rate is usually lower than the rates on home equity loans. You can access your funds for the whole draw period, which gives you financial security.
The downsides are that the rates can change, payments can be unclear, and you might be shocked when you start paying them back. If you don't have discipline, it's easy to borrow too much money. The minimum payment structure makes it easy for borrowers to only pay interest and not the principal, which means that there are still big balances when the draw period ends.
With cash-out refinancing, you get a new, bigger mortgage to replace your old first mortgage. You get cash for the difference between the new loan amount and the balance on your old mortgage. If you owe $200,000 on your current mortgage and refinance to a new $250,000 mortgage, you get $50,000 in cash (after closing costs).
Cash-out refinancing has a number of benefits, including the ability to combine all of your loans into one with one payment, the possibility of lowering your overall interest rate if current mortgage rates are lower than your current rate, and the ability to access a lot of equity (you can usually refinance up to 80 percent of your home's value). Cash-out refis also have fixed rates, which makes them stable.
There are a lot of bad things about the market today. If you bought a home or refinanced in 2020 or 2021, your mortgage rate is probably between 3 and 4 percent. If you refinance today, you'll have to give up that low rate and get a new mortgage at about 7%. This makes your total monthly housing costs go up by a lot. Even though you're putting your mortgage and the cash-out amount together into one payment, that payment will be a lot higher than if you kept your low-rate mortgage and took out a separate HELOC for the cash you need.
Let me show you the figures. Let's say you have a $300,000 mortgage with a 3.5% interest rate and a monthly payment of $1,347. You want to get $50,000 in equity. The first option is to keep your $1,347 mortgage payment and add a HELOC payment of $318 for a $50,000 balance at 7.64 percent. You have to pay $1,665 every month.
Option 2 is a cash-out refinance for $350,000 at a rate of 7.00 percent. You would have to pay $2,329 every month. That's $664 more a month than keeping your current mortgage and getting a HELOC, or about $8,000 more a year. If you refinanced instead of taking out a HELOC, you'd pay almost a quarter million dollars more in monthly payments over the course of 30 years. If your current mortgage rate is already high, cash-out refinancing doesn't make sense.
The only time this doesn't apply is if you're already thinking about refinancing for other reasons. You might want to get rid of PMI, switch from an ARM to a fixed rate, or buy out a co-borrower in a divorce. It might make sense to take cash out at the same time as refinancing if you're already resetting to current rates.
This is a framework for making decisions. If you want to be able to borrow money as needed, your current first mortgage rate is less than 5%, you want lower initial payments with interest-only options, you're okay with variable rates, or you might not use all the credit you have, choose a HELOC. If you need a set amount of money for a one-time expense, want a fixed rate so you know how much you'll have to pay each month, prefer forced principal reduction from the start, or are worried about rates going up, choose a home equity loan. If your current mortgage rate is higher than 6.5 percent, you want to combine all of your payments into one, you need to access a large part of your equity, or you're already refinancing for other reasons, choose a cash-out refinance.
This is the part that no one talks about until you're at the closing table and all of a sudden there are fees you didn't know about. Let me explain everything about the costs of HELOCs so you won't be surprised.
A lot of lenders say they offer "no closing cost" HELOCs, and this is usually true for smaller loans with lower CLTV ratios. The lender pays the costs up front in exchange for your business, hoping that the interest they make over the life of the credit line will be enough to cover the costs. But just because there are no closing costs doesn't mean there are no fees. Usually, higher loan amounts or CLTV ratios do come with fees.
Depending on the lender, application fees can be anywhere from $0 to $300. Some lenders charge this fee up front just to look at your application, while others don't charge it at all. You usually can't get this fee back, so you have to pay it even if you're turned down or decide not to go through with it.
One of the most common costs is the cost of an appraisal. If you need a full appraisal, it will cost you between $300 and $600, depending on where you live and how big your home is. Some lenders pay this fee directly, while others want you to pay the appraiser. If your loan amount isn't too high and you have a lot of equity, the lender might use an Automated Valuation Model instead. This usually costs between $50 and $150, but it could also be free.
Title search and insurance costs make sure that there are no liens or claims on your property that would stop the lender from having a secured interest. Title work usually costs between $200 and $400. Some lenders include this in their "no closing cost" offer, while others give it to you.
Recording fees are charges by your county or city to record the new lien against your property in public records. Everyone pays these fees to the government, which range from $50 to $150 depending on where you live.
If your state requires an attorney to be involved in real estate transactions or if the lender charges for preparing loan documents, you may have to pay attorney fees or document preparation fees. Depending on the lender and where you live, these can cost anywhere from $0 to $500.
Annual fees or maintenance fees are ongoing costs some lenders charge just to keep the HELOC open, typically $0 to $75 per year. Every year for the life of the credit line, these show up on your statement. Before you agree to a HELOC with annual fees, look at other options that don't have them. Over 30 years, a $75 annual fee adds up to $2,250, which makes your interest cost go up.
Every time you take money out of your HELOC, you may have to pay a transaction fee, which is usually between $0 and $25. These fees add up quickly if you plan to make small draws often. Find lenders that don't charge fees for transactions or only charge a small number of them each year.
Some lenders require you to borrow a certain amount when you open a HELOC or with each subsequent draw. This is called a minimum draw requirement. The first minimums could be between $10,000 and $25,000. This means you have to borrow more than you might need right away, which raises your interest costs.
If you don't use your HELOC for a long time, you may have to pay inactivity fees of $50 to $100 per year. Some lenders think that unused credit lines are bad for business and want to get you to use them or close them.
If you pay off and close your HELOC within a certain amount of time, usually the first two or three years, you may have to pay a lot of money in early termination fees or prepayment penalties. These fees can be as high as $250 to $500. These are used by lenders to get back the money they spent up front if you don't keep the credit line open long enough for them to make enough interest. Pay close attention to the small print. If you think you might pay off the HELOC quickly or refinance your first mortgage in the next few years (which would mean closing the HELOC), you should stay away from products that charge early termination fees.
If you pay late, you will have to pay a fee, which is usually between $25 and $50. You can avoid these by setting up automatic payments or making sure you pay on time every month.
If a payment bounces, you might have to pay a fee to get it back, usually between $25 and $35. Once more, this can be avoided with good account management.
If you choose to convert some or all of your variable rate HELOC balance to a fixed rate for a set period of time, you will have to pay fixed rate fees. Every time you ask for a fixed-rate option, this fee is usually between $15 and $50.
The total costs up front for a HELOC usually range from $0 to about $2,000, depending on the lender, the loan amount, and your specific situation. This is different from cash-out refinancing, which usually has closing costs that are 2% to 5% of the loan amount. If you refinance for $300,000, the closing costs would be between $6,000 and $15,000. You could pay anywhere from nothing to $1,500 on a $50,000 HELOC. The HELOC costs a lot less up front.
The fees aren't the real cost of a HELOC, though. The interest you pay on the credit line over time is what matters. As I showed before, a $50,000 HELOC with a 7.64% interest rate and payments that only cover interest for 10 years and then both principal and interest for 20 years costs about $88,480 in total interest. The fees are so small compared to the interest charges that they don't even matter. This is why the interest rate you get is much more important than whether or not you pay a $300 appraisal fee.
How you manage your HELOC is more important than the specific terms you start with at the end of the day (ugh, I hate that phrase, but it fits here). I've seen borrowers with great rates and low fees get into trouble because they didn't manage their money well, and I've seen borrowers with average terms build up a lot of wealth by sticking to their repayment plans.
You have some freedom in how you make payments during the draw period. The lender needs a minimum monthly payment, which is usually the interest that builds up during that month. If you have a balance of $40,000 and an interest rate of 7.64 percent, your minimum payment would be about $255. You can pay this amount and your balance will stay at $40,000. You could also pay more.
During the draw period, the best thing you can do is pay off your principal whenever you can, even if it's just an extra $100 or $200 a month on top of the minimum. This meets a number of goals. First, it lowers the balance before the repayment period, which means that your required payment later will be lower. Second, it lowers the total amount of interest paid over the life of the credit line. Third, it frees up credit that you can use later if you need to.
Let me show you what happens if you pay more during the draw period. Let's say you take out a $50,000 loan and only pay interest for 10 years at a rate of 7.64 percent. After that, you start paying back the loan over 20 years. As we figured out before, you will pay about $88,480 in interest over 30 years.
Now, let's say you pay an extra $200 a month toward the principal during the draw period. That's a total of $518 a month instead of the minimum of $318. Your balance would be down to about $26,000 after 10 years, not the full $50,000. Instead of $418, your monthly payment during the repayment period would be about $217. Instead of $88,480, the total interest paid over the 30 years would be about $48,500. You saved $40,000 in interest by paying an extra $200 a month for ten years, which is $24,000 in extra payments. You saved $16,000 and cut your required payment in half while you were paying it back.
Some people who borrow money use the "pay it down during good months" method. Make a big payment on the principal when you get a bonus, a tax refund, or have a month that is better than you expected. These irregular payments add up over time, and they let you lower your principal without having to make higher payments every month.
Another good idea is to time your HELOC payments so that they line up with your paydays. If you get paid every two weeks, you might want to think about making half payments every two weeks instead of one full payment every month. This doesn't lower the amount you have to pay, but it does mean that you only have to make 26 half payments a year instead of 12 full payments. If you're paying more than the minimum, that extra payment goes straight to the principal.
You should start getting ready for the change in the repayment period years before it happens. Start doing the math on what your new payment will be about two to three years before your draw period ends. Use a calculator to find out how your payment period changes when your balance changes. If the payment will stretch your budget, you have time to either pay off the balance quickly or change your budget to fit the higher payment.
Some lenders send out letters to let you know when the draw period is about to end, but you shouldn't count on this. Plan ahead and write down the exact date your draw period ends on your calendar. If you've been paying low minimum payments for ten years, the change can be jarring.
If your lender offers them, fixed-rate conversion options can help keep your payments stable during the draw or repayment period. If you have a $60,000 balance and two years left in your draw period, and you're worried about rates going up, You could change the whole balance to a fixed rate for a set amount of time, usually 5, 10, 15, or 20 years. At that point, your variable rate HELOC turns into a fixed-rate loan, but you usually pay a little more for the peace of mind. The conversion fee is usually small, between $15 and $50, so this is a fairly cheap way to protect yourself against rising rates.
When the draw period ends or rates go up a lot, you can also refinance your HELOC. You can get a new HELOC and start your draw period over again. If rates have gone down since you first opened your HELOC or if you want to avoid the higher payments that come with a longer repayment period, this makes sense. The bad thing is that you're making the loan last longer, which means you might have to pay interest for a lot longer.
You can also refinance into a fixed-rate home equity loan when your draw period is over. You'll lose the ability to get more money, but you'll know exactly what your payments will be. This works best if you've paid off a lot of the balance during the draw period and just want to make steady payments to pay off the rest.
Some people refinance their first mortgage to get rid of their HELOC completely. If the rates on your first mortgage and your HELOC are both lower than the rates on your second mortgage, a cash-out refinance might be a good way to combine everything. This will only work if rates have gone up. This strategy usually doesn't make sense financially in today's market, where a lot of people have first mortgages with rates of 3% to 4%.
The goal is to pay off your HELOC in full. If you get an inheritance, sell some investments, or have saved up a lot of money, you might want to pay off the HELOC balance in full. Look over your loan papers first to see if there are any fees for paying off the loan early or ending it early. If you're in the time frame when these fees apply, figure out if it's better to pay them now or wait until the penalty period ends.
Some people who borrow money use their tax refunds, bonuses, or annual commissions to make big payments on their HELOC. This speeds up the payoff process without forcing you to make higher monthly payments all year. Every April, when she got her tax refund, one borrower I worked with paid an extra $5,000 toward her HELOC. She got rid of $30,000 from her balance over six years without changing her monthly budget.
It's important to manage variable rate risk because your payment could go up if rates go up. One way to do this is to always plan for a rate that is 1 to 2 percentage points higher than what you have now. You're borrowing too much if you can't easily make the payment at a higher rate. When rates go down, enjoy the lower payments, but don't spend more than you need to. Use that money to pay off debt or reach other financial goals.
Another approach is to monitor Federal Reserve communications and adjust your strategy accordingly. If the Fed says that rates will go up soon, pay off your principal faster before they do. If the Fed is in a cutting cycle, like they were in late 2024 and seem to be in late 2025, you might want to hold off on aggressively paying down your principal and instead use that money to invest in things that will give you a higher return or to pay for other important things.
I understand. This is hard. But we need to talk honestly about what can go wrong with HELOCs because there are real risks and your home is at stake.
The main risk of any HELOC is that your home is the collateral. If you don't pay, the lender can take your property. This isn't just a theory. During the housing boom of the mid-2000s, homeowners who took out too many HELOCs found themselves underwater when home values fell in 2008–2009. Many people lost their homes to foreclosure because they couldn't keep up with the payments when their lives changed.
If interest rates go up, your payment could go up a lot because of variable interest rate risk. We've seen this happen before. The Federal Reserve raised rates at the fastest rate ever from early 2022 to mid-2023. In less than 18 months, the prime rate went from 3.25% to 8.50%. A borrower with a $50,000 HELOC balance saw their monthly interest payment go up by $219, or $2,628 per year. The payment went from about $135 to about $354. That's a lot of money that many families couldn't afford without cutting back on other things.
Most HELOCs have lifetime rate caps that limit the highest interest rate. This is usually around 18 percent, but it can vary by lender and state laws. Even with limits, think about how much your payment would go up from where it started. If you have a $75,000 balance, an 18 percent rate would mean you pay $1,125 in interest every month. That kind of payment shock is too much for most families to handle.
Even though it's built into the loan structure from day one, many borrowers are shocked by the repayment period payment shock. If you only pay interest on a $50,000 balance for 10 years, your payment will go up to $418 or more when the repayment period starts. This can be shocking. If your finances have gotten worse during the draw period, you might not be able to afford the higher payment. Some people have to refinance or even sell their home because they can't make the payments on time.
Reducing your home equity stake increases your financial vulnerability. When you take out a HELOC for $75,000, you're basically taking $75,000 of equity out of your home and using it for something else. If home values go down, you might have less equity than you thought, or you might even be underwater if the drop is bad enough. This is especially dangerous if you might have to sell your house soon. If you have less equity, you might not be able to sell for enough to pay off both your mortgage and HELOC. This means you might have to bring cash to closing or not be able to sell at all.
It's easy to borrow too much money once you have a credit line, which makes it hard to resist the urge to do so. You get a $100,000 HELOC, use $30,000 right away, and then when you have an unexpected expense, you take out another $20,000. A few months later, you see a great investment opportunity and take out another $25,000. You've borrowed $75,000 in no time, and your monthly payment has more than doubled. HELOCs work like credit cards in that they let you borrow more money during the draw period. This makes it easier to borrow more money.
There are a lot of risks when the economy goes down. If you lose your job or have a big drop in income, it may be hard or impossible to make your HELOC payment. Some federal student loans let you skip payments during times of financial hardship, but HELOCs usually don't have built-in hardship provisions. If you miss a payment, you could lose your home. The financial crisis of 2008–2009 showed how fast this can get out of hand. Millions of homeowners lost their jobs while home values fell, making it impossible for them to make their payments or sell their way out of the problem.
When the value of your home is less than the total amount of your mortgage debt (first mortgage plus HELOC), you are in an underwater situation. ATTOM's most recent data shows that as of the first quarter of 2025, about 2.3 percent of mortgaged homes are in negative equity, which means there are about 830,000 homes in the United States that are underwater. This is a lot better than the 26 percent negative equity rate during the worst of the 2009 recession, but it's been going up since 2024, when home prices stopped going up as quickly. If your house is worth less than what you owe, you can't sell it without bringing cash to closing, you can't refinance, and you're stuck making payments on it.
HELOCs can have both good and bad effects on credit scores. When you open a HELOC, you get more credit, which can lower your credit utilization ratio and maybe even raise your score. Making payments on time consistently helps your score. The new account, though, hurts your score for a short time. The hard inquiry from the application process costs you a few points, and having a high balance compared to your credit line hurts your utilization ratio. Your credit score will drop by 60 to 110 points for every 30 days you are late or miss a payment, depending on your starting score.
We talked about prepayment penalties and early termination fees in the fees section. These can make you keep the HELOC longer than you want to. If your first mortgage rate goes down and you want to refinance, most lenders will make you close any subordinate liens, like HELOCs. You have to pay the $500 early termination fee on your HELOC or wait another year to refinance if you're only two years into a three-year penalty period. This could cost you months of savings from getting a lower rate on your first mortgage.
The 2017 Tax Cuts and Jobs Act made it harder for some borrowers to get the tax break they thought they would. You can't deduct the interest on your HELOC if you're using it for anything other than home improvements. The total mortgage debt limits of $750,000 for joint filers and $375,000 for single filers might still apply, even for home improvements. Also, a lot of families now take the standard deduction instead of itemizing, so they can't deduct mortgage interest at all. Don't assume that your HELOC interest is tax-deductible; always talk to a tax expert first.
If your lender has money problems, you may have problems with them. Some lenders froze HELOCs during the 2008 financial crisis, which meant that borrowers couldn't get more money even though they were still in their draw period. If home values had dropped enough to put the lender's collateral position at risk, this was allowed by the loan terms. People who planned to use their HELOC for emergencies or planned expenses suddenly couldn't get to it.
HELOCs can be harder to deal with when you get divorced or move in with your family. If you get a HELOC and then get divorced, the court will decide who has to pay it back and how the equity will be split. The lender is not a party to your divorce decree, so if the court gives the HELOC to your ex-spouse but they don't pay, the lender can still come after you if you are on the loan. This can ruin your credit and add a lot of stress to an already tough time.
If you've read this far and think a HELOC is right for you, don't let the application process scare you. I will explain everything that happens from the time you apply until the time you close, so you know what to expect at each step.
The whole process usually takes two to four weeks, from applying to closing, but this can vary a lot depending on the lender and how complicated your finances are. Some online lenders say they can close loans in as little as five to seven days for simple applications. Traditional banks, on the other hand, may take six weeks or more. Knowing the timeline helps you plan ahead, especially if you need the money by a certain date.
The first step is to do some research and compare prices. Take a week to look at at least three lenders. Don't just look at interest rates. Look at the fees, annual charges, draw period length, repayment period length, minimum draw requirements, and penalties for paying off the loan early. Read what other people have said about each lender. Your current mortgage lender or bank may offer discounts for being a customer, but don't assume they're the best deal. Credit unions usually have better rates and lower fees than big banks.
Before you apply, the second step is to get your papers in order. This saves a lot of time when you start the official application. Get your most recent mortgage statement, which shows your current balance and payment history; your last two years of tax returns, which include all schedules; your last two years of W-2s; your last two months of bank statements for all accounts; proof of homeowners insurance; a government-issued photo ID; and a list of your current debts, including account numbers and balances. If you work for yourself, you should also make profit and loss statements for the last two years and the current year.
The third step is the official application, which usually takes 30 to 60 minutes if you have all your papers ready. Most lenders let you fill out an application online, and they walk you through each step. You'll need to give them personal information like your Social Security number, where you work and how much you make, information about your home, like its estimated value and current mortgage balance, the amount of credit you want, and information about other debts and financial obligations. The application starts a hard credit check, which lowers your credit score by a few points for a short time. If you apply to more than one lender in a two-week period, all of those applications will count as one hard inquiry. This is because multiple hard inquiries for the same reason within a short period of time (usually 14 to 45 days, depending on the credit scoring model) count as one inquiry.
The fourth step is to wait for the lender to do their first review and appraisal. The lender will look over your application, get your credit report, and order a home valuation within a few days. This could be an Automated Valuation Model that takes a few minutes and costs very little, a desktop valuation that takes a few days and may need pictures of the outside, or a full appraisal that takes one to two weeks from ordering to getting the report. According to the MBA's data, 47% of HELOCs in 2024 used AVMs, 26% used desktop valuations, and 24% needed full appraisals.
If you need a full appraisal, the appraiser will get in touch with you to set up an appointment. They'll take pictures of the inside and outside of your home, measure it, write down its condition and features, and compare it to recent sales of homes like yours in your area. The lender gets the appraiser's report, not you directly. However, you can ask for a copy. If the appraisal is lower than you thought it would be, it will directly affect how much you can borrow. If you think an appraisal is wrong, you can contest it by giving the appraiser sales that are similar to the one in question or proof of mistakes, but the chances of winning are low.
Step five is underwriting, which usually takes one to two weeks. An underwriter looks at all of your financial information to figure out how risky it is. They check your income by confirming your job and looking at your tax returns. They also look at your debt-to-income ratio to make sure you can afford the payment, the value and condition of the home to make sure it is good collateral, your payment history on current debts to see if you are creditworthy, and your bank statements to make sure you have enough assets and to look for red flags like large deposits that could mean you have undisclosed debts.
The lender may ask for more paperwork during the underwriting process. In the business world, this is known as "conditions." People often ask for letters explaining credit inquiries, large deposits, or gaps in employment, as well as extra bank statements or pay stubs if the ones they already have are old. They also ask for proof of other income sources mentioned on their application or for clarification of information that doesn't match up across different documents. Answer these requests right away. Every day you wait adds time to your timeline and puts your rate lock at risk of expiring.
Step six is title work, which is done at the same time as underwriting. The title company checks public records to make sure that there are no liens, judgments, or other claims against your property that would stop the lender from having a secured interest. They want to find things like unpaid property taxes, contractor liens for work that wasn't paid for, HOA liens, judgment liens from lawsuits, or mistakes in public records. If there are any problems, they need to be fixed before closing. This could mean paying off an old lien you didn't know about or fixing mistakes in county records.
Approval and closing disclosure are the seventh steps. The lender sends you a closing disclosure at least three business days before your scheduled closing date, once underwriting has approved your loan and the title work is done. This is required by federal law so that you have time to look over the final terms. The closing disclosure shows the amount of your approved credit line, the interest rate and APR, the draw period and repayment period terms, the monthly payment for each period, the closing costs broken down by line, any annual fees or other ongoing charges, and any prepayment penalties.
Take a close look at this paper. Look at it next to the first loan estimate you got when you applied. The interest rate shouldn't have changed much unless market rates changed or rate locks ran out. Fees shouldn't have gone up a lot from what was first thought. If something doesn't look right, call the lender right away. You can put off closing until you get answers.
Step eight is closing, which is a lot easier than closing on a house. You can usually meet with a notary at your home, the lender's office, or a title company. It takes 30 to 60 minutes to close. When you sign the note, you promise to pay back the loan. The mortgage or deed of trust gives the lender a lien on your property. You will also have to sign various federal and state-specific documents, as well as IRS Form 4506-T, which lets the lender get your tax transcripts. If you're paying for closing costs out of your own pocket, bring your government-issued ID and any certified checks or wire transfer confirmations.
Some lenders take closing costs out of your credit line. If your approved credit line is $75,000 and you have $1,200 in closing costs, you might have $73,800 left over after closing, with $1,200 already taken out to pay for the costs. Some lenders want you to pay closing costs separately so that you can use your full credit line.
Step nine is getting to your money. Most home equity loans have a three-day right of rescission period after closing, but this doesn't apply to home purchases or refinances that don't involve cash. During this three-day period, you can cancel the transaction for any reason. If you cancel, the lender will give you back any money you paid and take the lien off your property. You're back to where you started. If you don't cancel, you can get your money on the fourth business day after closing.
Most lenders give you more than one way to access your HELOC. You can write checks against the credit line, use a linked debit card to make purchases or take money out of an ATM, transfer money online to your bank account, or wire money for large amounts. Some lenders want you to take out a loan right away, usually between $10,000 and $25,000, while others let you leave the whole credit line unused until you need it.
We have talked about a lot of things about HELOCs, and by now you should know how they work, how much they cost, and how to use them well. You need a lender you can trust to help you through the process and give you good terms if you really want to access your home equity.
AmeriSave Mortgage Corporation has been helping homeowners get to their equity for years by putting their needs first. We offer a range of home equity solutions including HELOCs and home equity loans, allowing us to recommend the product that actually fits your situation rather than pushing you toward whichever product makes us the most money.
Our rates are competitive, and we're transparent about fees from day one. No surprises at closing, no hidden charges showing up later. We understand that you're looking around, and we respect that. We want to win your business by giving you real value and great service, not by hiding the real costs in small print.
The application process is as quick and easy as possible without sacrificing the quality of the underwriting. We have spent money on technology that lets us quickly check information, efficiently order valuations, and keep you up to date at every step. You won't just have an automated system to talk to; you'll also have a real person to talk to.
The people are what really make AmeriSave stand out. Some of the most honest and dedicated people in the mortgage business work here, and they really want to help their clients reach their goals. There is a promise to do the right thing, even if it means working on the weekends to finish your closing on time. We are always changing and improving our systems to make them work better and give our customers a better experience. We stay flexible and ready to respond to changes in the market.
We offer a wide range of products, including ones that other lenders don't. We help borrowers with all kinds of credit, even those who don't fit into the usual lending categories. We'll look at your situation fairly and tell you honestly what we can do, whether you have great credit and 40% equity or you're rebuilding your credit and don't have as much equity to work with.
If you want to learn more about your home equity options, go to AmeriSave's home equity lending page. There, you can see the current rates and terms, use our calculators to figure out your specific numbers, or start a pre-qualification that won't hurt your credit score. We're here to help you make the best choice for your financial future and answer any questions you may have.
We've talked about everything from simple HELOC calculations to complicated repayment plans, as well as the current state of the market and long-term risks. If I've done my job right, you now know not only how to use a HELOC calculator but also what the results mean for your finances.
There is a real chance in the current market. According to Federal Reserve data, homeowners have about $35 trillion in total equity, with an average of $307,000 in equity per mortgaged homeowner. There is also $17.5 trillion in tappable equity in the US, so you probably have more borrowing power than you thought. The national average HELOC rate is 7.64 percent as of November 2025. This is lower than it was earlier this year and much lower than the rates for credit cards or personal loans. If you got a low-rate first mortgage in 2020 or 2021, a HELOC lets you tap into your equity without losing that good rate by refinancing.
Being strategic and disciplined is the most important thing. A HELOC is a powerful financial tool that can help you reach important goals like making necessary home repairs, paying off high-interest debt, or setting up an emergency fund with cash that is easy to get at low rates. If you use it carelessly, it could put your home at risk and put you in a hole that takes decades to get out of.
The first thing you should do to figure out how much you can borrow and how much you'll have to pay back is to use a HELOC calculator. Enter the right information and run several scenarios with different interest rates to see how changes in payments might affect your budget. Look at the results of the calculator and compare them to what you actually make and spend. Can you comfortably make the estimated payment, or would you have to cut back on important expenses? Most importantly, will you still be able to make the payment if rates go up by 2 to 3 percentage points from where they are now?
If the numbers add up, start getting your paperwork together and comparing lenders. To get more than one offer and keep your credit score from going down too much, apply to at least three lenders in two weeks. Don't just look at the rate when you make your choice. Think about the fees, terms, the lender's reputation, and how at ease you are with their representatives.
Once you get a HELOC, be responsible with it. Only borrow what you need, not the most you can get. Whenever you can, pay more than the minimum, even if it's just an extra $50 or $100 a month. Keep an eye on the Federal Reserve's policies and interest rates so you don't get caught off guard when payments go up. Plan ahead for the change in the repayment period so that the higher payment doesn't catch you off guard.
Most importantly, use the calculator to keep up with your HELOC throughout its life. Every few months, check your current balance and the current rates to see how you're doing. If rates have gone down, be happy about your good luck and maybe speed up your payments. If rates have gone up, change your budget and think about whether you should take steps to protect yourself, like fixing your rate or paying off your balance more quickly.
The HELOC calculator is only a tool. It gives you numbers based on what you put in and what you think. Your financial judgment will tell you if acting on those numbers makes sense for your situation, your risk tolerance, and your long-term goals. There is no one-size-fits-all answer to the question of whether or not you should get a HELOC or how much to borrow. It all depends on your situation.
After working in this field for years, being licensed in 37 states, and helping thousands of borrowers make these choices, I can tell you that borrowers who know what they're doing make better choices. I can tell that you're taking this seriously and doing your homework because you've read this whole guide. That's the way to go if you want to get good results.
Your home is probably your most valuable asset and the thing that gives you the most financial security. Using it as a HELOC can be a great idea or a terrible one, depending on how you do it. Be careful when you borrow, pay off your debts quickly, and always have some extra money in your budget in case rates go up or your income drops.
Most lenders will let you borrow up to 80 to 90 percent of the value of your home, minus what you still owe on your first mortgage. This is known as your combined loan-to-value ratio. If your home is worth $400,000 and you owe $250,000 on your mortgage, you could borrow up to $70,000 at 80 percent CLTV. This is because $400,000 times 0.80 equals $320,000, which is the most you can borrow, minus your current mortgage of $250,000. You could borrow up to $90,000 with an 85 percent CLTV. The exact maximum depends on your credit score, income, debt-to-income ratio, and the rules of the lender. People who have good credit and lower existing mortgage balances usually qualify for higher CLTV ratios.
Most lenders will only approve a HELOC if your credit score is at least 620. However, some will approve it with a score as low as 600 if you have a lot of equity in your home. But only people with credit scores of 740 or higher can get the best rates. People with credit scores between 680 and 739 usually pay interest rates that are 0.50 to 1.00 percentage points higher than the best rates. People with scores between 620 and 679 might pay 1.50 to 2.50 percentage points more. Your credit score determines both whether you get approved and what rate you get. If your score is below 740, you might want to take steps to raise it before you apply. For example, you could pay off your credit card balances, make sure all your bills are current, and dispute any mistakes on your credit reports.
Your outstanding balance is used to figure out your HELOC interest every day, and you pay it once a month. To get the daily interest charge, multiply your balance by your annual interest rate and then divide that by 365. To find out how much interest you owe each month, multiply that daily amount by the number of days in the billing cycle. For instance, if you have a balance of $50,000 and an APR of 7.64%, your daily interest is about $10.47, which you can find by multiplying $50,000 by 0.0764 and dividing by 365. You'd pay about $314 in interest over the course of a month. Most lenders only want you to pay interest during the draw period, but you can pay the principal if you want. Your payment during the repayment period includes both the principal and the interest. This is how the remaining balance is fully paid off over the repayment term.
The draw period is the first part of a HELOC. It usually lasts 10 years, but some lenders offer 5 or 15 years. You can take money out up to your credit limit, pay it back, and then take it out again during this time. Most of the time, your minimum monthly payment is just the interest on your balance. However, you can pay more to lower the principal. The repayment period comes after the draw period and usually lasts 20 years. During this time, you can't get any more money, and your credit line is closed. To pay off the rest of your balance, you need to make monthly payments that include both the principal and the interest. During the repayment period, payments are usually much higher because you're paying off the loan balance instead of just the interest.
It all depends on the terms of your loan. If you pay off and close your HELOC within a certain time frame, usually the first two or three years, you may have to pay a prepayment penalty or an early termination fee. These fees usually range from $250 to $500. If you don't keep the HELOC open long enough for lenders to make enough interest, these fees help them get back the money they spent up front. But a lot of HELOCs let you make extra principal payments during the draw period or pay off the whole balance without a fee. Before applying for a loan, read the fine print carefully to see if there are any penalties for paying it off early. If you think you might pay off your HELOC quickly, refinance your first mortgage, or sell your home in a few years, pick a lender that doesn't charge fees for ending the loan early.
Most HELOCs have interest rates that change from time to time based on changes to an underlying index, which is almost always the prime rate. The prime rate usually goes up or down by the same amount as the federal funds rate, and your HELOC rate changes to match. Your actual rate is the prime rate plus a margin that depends on your credit score, loan-to-value ratio, and the lender's prices. Some lenders let you convert your balance to a fixed rate for a set period of time, usually 5, 10, 15, or 20 years. There is usually a small fee for each conversion, and the fixed rate may be a little higher than the variable rate at the time of conversion. Some lenders do offer HELOCs with fixed rates from the start, but these are less common and usually have higher rates than variable-rate HELOCs.
The prime rate is the interest rate that banks charge their most creditworthy customers and serves as the index for most HELOC rates. The prime rate is 7.00 percent as of November 2025. Your HELOC rate is the prime rate plus a margin that is usually between 0.50 and 4.00 percentage points, depending on your credit history. Your HELOC rate is 8.00 percent if the prime rate is 7.00 percent and your margin is 1.00 percent. The prime rate usually changes by the same amount as the federal funds rate within a few days. Your HELOC rate follows suit. A 0.25 percent decrease in the prime rate lowers your HELOC rate by 0.25 percent and reduces your monthly payment proportionally. A quarter-point drop in the rate saves you about $10 a month on a $50,000 balance. On the other hand, if the prime rate goes up, your rate and payment will go up as well.
It's bad to miss HELOC payments because your home is the collateral. If you miss a payment, you'll have to pay a late fee, which is usually between $25 and $50, and the missed payment will be reported to credit bureaus, which will hurt your credit score. If you miss a payment by 30 days, your score could go down by 60 to 110 points. If you keep missing payments, the lender will try to get in touch with you and may offer workout options based on your situation. If you don't pay your mortgage for 90 to 120 days, the lender can start the process of taking your home and selling it to get their money back. This process is different in each state, but it usually takes a few months to more than a year. If you can't make your payments, call your lender right away to talk about options like lowering your payments for a short time, extending the draw period, or refinancing the HELOC to make the terms easier to handle. Don't just ignore the problem and hope it goes away on its own.
It's hard to get a HELOC with bad credit, but it's not impossible. Most lenders require a minimum credit score of 620, and some require 640 or higher. If your score is below 620, you don't have many choices. Some lenders focus on helping people with bad credit, but they charge a lot more in interest—usually 2 to 4 percentage points more than normal rates—and they want lower loan-to-value ratios, usually 65 to 70 percent CLTV instead of 80 to 90 percent. They might also charge more. If you have a lot of equity, a steady income, and can show that your finances have gotten better, a lender may be willing to work with you even if your credit is bad because of past mistakes. Instead, you could take six months to a year to raise your credit score before applying. You can do this by paying all your bills on time, paying off your credit card debt, and fixing any mistakes on your credit reports. Better credit will help you get a better rate, which will save you thousands of dollars over the life of the HELOC.
The whole HELOC process, from applying to closing, usually takes two to four weeks, but this can change depending on the lender and how complicated your situation is. Some online lenders say they can close loans in as little as five to seven days for easy applications with good credit, a lot of equity, and easy income verification. It could take four to six weeks for a regular bank. The timeline depends on a number of things, such as the type of home appraisal you need, how quickly you send in the paperwork the lender asks for, how busy their underwriting department is, and whether there are any problems with the title work or credit. Get all of your paperwork in order before you apply, respond right away to any requests for more information, and look into lenders that offer easy-to-use digital processes to speed things up. If you need money by a certain date, apply for it well in advance and let the lender know when you need it.
Most HELOCs have a 20-year repayment period, but depending on the lender and the terms you agree to, this can range from 10 to 25 years. The time to pay back starts right after the draw period ends. You can't borrow any more money during the repayment period. To pay off the remaining balance, you have to make monthly payments that include both the principal and the interest. The standard loan amortization formulas use your remaining balance, current interest rate, and the length of the repayment period to figure out how much these payments will be. If you have a longer repayment period, your monthly payments will be lower, but you'll pay more interest over the life of the loan. If you have a shorter repayment period, your monthly payments will be higher, but you'll pay less interest. Some lenders let you pick how long you want to pay back the loan when you apply or when the draw period ends.
Many lenders let you lock in a fixed interest rate on all or part of your HELOC balance for a set period of time. You can usually get these conversions during the draw period or the repayment period. You can either convert all of your balance or just part of it, leaving the rest at the variable rate. Most of the time, the fixed-rate terms are 5, 10, 15, or 20 years. When you switch from a variable rate to a fixed rate, the fixed rate is usually a little higher than your current variable rate, usually by 0.25 to 0.75 percentage points. This is because you're paying for rate stability. There is usually a small fee for converting, which is usually between $15 and $50. You can usually make more than one conversion during the life of your HELOC, but some lenders only allow a certain number each year. If you're worried about rising interest rates or want to be able to plan your budget, fixed-rate conversions are a good choice because they protect you from rate increases and guarantee your payments.
Most of the time, you can't deduct closing costs from your taxes. But depending on how you use the money, you may be able to deduct the interest you pay on your HELOC. The Tax Cuts and Jobs Act of 2017 says that you can only deduct home equity interest if you use the money you borrowed to buy, build, or make major improvements to the home that secures the loan. This means that if you use your HELOC to fix up your kitchen, build a new room, or replace your roof, the interest may be tax-deductible, as long as your total mortgage debt is less than $750,000 for married couples filing jointly or $375,000 for single filers. You can't deduct the interest if you use the HELOC to pay off credit card debt, buy a car, or go on vacation. Also, to get mortgage interest deductions, you have to list them on your tax return. Because the standard deduction has gone up under current tax law, many families no longer itemize their deductions. This means they can't deduct mortgage interest no matter how they use the money. Always talk to a qualified tax professional about your own situation.
At the end of the loan term, a balloon payment is a large sum of money that is due. Most HELOCs don't require balloon payments. Instead, they go from the draw period to the repayment period, where the balance is paid off over 10 to 20 years with regular monthly payments. Some HELOCs, especially older ones or those from certain lenders, do have balloon payment clauses, though. With a balloon payment plan, you only pay interest during the draw period, and then you have to pay back the whole principal balance at the end of the draw period. If you borrowed $60,000 and only paid interest for 10 years, you would owe the full $60,000 as a balloon payment at the end of the draw period. If you can't pay, this means you have to either pay off the whole balance, refinance into a new loan, or risk foreclosure. Most people think balloon payments are risky for borrowers, and they are less common in modern HELOC products. Always read your loan documents carefully to see if a balloon payment is required.
HELOC rates usually change every month, but how often they change depends on your loan agreement and how often your lender updates their rates. Most HELOCs are linked to the prime rate, which can change when the Federal Reserve changes the federal funds rate. The prime rate usually changes within a day or two of the Fed changing its rate, and your HELOC rate follows. But your monthly payment amount usually stays the same for a set amount of time, like the first day of each month or the day your payment is due. Some lenders change their rates every three months instead of every month. The terms of your loan will say how often your rate will change and what index it is linked to. Your HELOC rate would only change according to the schedule in your agreement, even if the prime rate changes several times in a single month. You can keep an eye on changes in the prime rate by reading financial news and following Federal Reserve announcements. This way, you can guess how your payment might change.
Technically yes, though it's uncommon and difficult. Most lenders would rather be in first or second place than third or lower. If you already have a first mortgage and a HELOC, a second HELOC would be in third place. This means that if you defaulted and the home went into foreclosure, the lender of the second HELOC would only get paid after the first mortgage and first HELOC are paid off. Most lenders won't give you more HELOCs because of this higher risk. The total loan-to-value ratio of all your mortgages and HELOCs can't be more than 80 to 90 percent of your home's value. This means that you can't borrow more than that across multiple loans. If you need more equity, it's usually better to close your current HELOC and open a new one for a bigger amount, or to refinance your first mortgage with a cash-out refinance to combine everything into one loan. Managing payments becomes more difficult with multiple HELOCs, and the extra work they create is not worth it.
Most lenders let you borrow up to 80 to 90 percent of the value of your home with a HELOC, but this depends on your credit history and the lender's rules. To get your CLTV, add your first mortgage balance to the amount you want for a HELOC and divide that by the value of your home. If your home is worth $500,000 and you owe $300,000 on your first mortgage and want a $100,000 HELOC, your CLTV would be 80 percent, which is $400,000 in total loans divided by $500,000 in home value. Some lenders may offer CLTVs of up to 90% to borrowers with good credit scores (760 or higher) and steady income. People with credit scores below 700 usually can't get a CLTV higher than 80 percent. Lenders charge higher interest rates and require borrowers to have better financial profiles when the CLTV is higher. This is because the lender is taking on more risk. When deciding on the maximum CLTV, lenders also look at your debt-to-income ratio, payment history, and job stability.
It's easy to figure out how much equity you have in your home. You can get an idea of your home's current market value by using online tools, looking at recent sales of similar homes in your area, or hiring a professional to do an appraisal. Take away the amount of your current mortgage, which you can find on your most recent mortgage statement. The answer is your total equity. You have $150,000 in equity if your home is worth $425,000 and you owe $275,000 on your mortgage. To find out how much HELOC you can get, multiply the value of your home by the highest CLTV your lender will allow, which is usually between 0.80 and 0.90. Then, take away your mortgage balance. If your CLTV is 80%, you could have $340,000 in loans, which means you could get up to $65,000 through a HELOC. You could borrow up to $86,250 with an 85% CLTV. These are the most you can get, but you might not be able to get the full amount because of your income, credit score, and debt-to-income ratio.
When you apply for a HELOC, you usually need to show recent pay stubs covering at least the last 30 to 60 days that show year-to-date earnings, tax returns for the last two years with all schedules and W-2s, bank statements for the last two months for all accounts, your most recent mortgage statement showing your current balance and payment history, proof of homeowners insurance, government-issued photo identification like a driver's license or passport, and a list of your current debts with account numbers and approximate balances. Self-employed borrowers need more paperwork, such as two years' worth of personal and business tax returns with all schedules, profit and loss statements for the current year and maybe previous years, and sometimes bank statements that show regular business deposits. If you make money from renting out investment properties, bring leases and proof of rental payments. Lenders check your employment directly with your employer and may ask for more documents during the underwriting process, like letters explaining credit inquiries, large deposits, or gaps in employment.
Yes, but the terms are usually not as good as those of HELOCs on primary residences. Lenders see second homes and investment properties as riskier because borrowers are more likely to stop paying on these properties before they stop paying on their main home. Most of the time, the maximum combined loan-to-value ratios are lower, around 70% to 80% instead of 80% to 90% for primary residences. Interest rates are higher, usually between 0.50 and 1.50 percentage points higher than those for HELOCs on primary residences. Minimum credit scores may be higher, usually 680 or 700 instead of 620. Some lenders won't give you a HELOC on an investment property at all, which limits your options. Lenders usually want rental properties to have positive cash flow, which means that the rent is more than the mortgage payment and the estimated operating costs. They might also want to see that the landlord has experience or that they have more money saved up. If you need to get equity out of a second home or investment property, compare offers from different lenders and be ready for stricter rules than you would have for a primary residence HELOC.
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