What Is a HELOC and How Does It Work?
A Home Equity Line of Credit lets you borrow against your home's equity at much lower rates than credit cards or personal loans.
General information, not professional advice — see terms of use.
A HELOC is a revolving line of credit secured by your home equity, similar to a credit card but at much lower interest rates.
How it works:
- Approved for a maximum credit limit (up to 80–85% of home value minus mortgage balance)
- During the draw period (usually 10 years): borrow, repay, and reborrow up to your limit
- You pay interest only on what you've borrowed
- After draw period: repayment phase (10–20 years) with fixed installments
Interest rates: HELOCs have variable rates tied to the prime rate. Current rates: 7.5–10% — significantly lower than credit cards (20–29%) or personal loans.
Best uses:
- Home improvements that increase property value
- Large planned expenses (medical bills, college tuition)
- Emergency fund backup
- Debt consolidation (with caution)
Critical risk: A HELOC is secured by your home. If you can't repay, the lender can foreclose. Never use a HELOC for discretionary spending or investing in volatile assets.
Follow-up questions
How much can you borrow on a HELOC?
Up to 80–85% of your home's appraised value minus your mortgage balance. Example: Home worth $400,000, mortgage $250,000. 85% of $400,000 = $340,000. $340,000 - $250,000 = $90,000 maximum HELOC. Good credit (640+ minimum, 720+ for best rates) required.
Is a HELOC or home equity loan better?
A HELOC is better for ongoing or uncertain expenses — borrow only what you need when you need it. A home equity loan is better for one-time expenses where you want rate certainty. HELOCs have variable rates; home equity loans have fixed rates.
Can you pay off a HELOC early?
Yes — most HELOCs allow early repayment without prepayment penalties. During the draw period, you can pay down the balance and reborrow. Some HELOCs have an early termination fee if you close the line within 3 years of opening. Check your agreement for specific terms.
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This page is general information, not professional advice, and it may not reflect the latest rules where you live. For your own situation, talk to a qualified adviser. Spotted an error? Email per@upperia.se and we will fix it.