Short answer: a HELOC — a home equity line of credit — is a revolving credit line secured by your home that you can draw from, repay and draw from again, much like a credit card with your house as collateral. Most HELOCs charge a variable rate tied to the prime rate plus a margin: with prime at 7.00% in November 2026, a typical rate is around 8.50%. On a $50,000 balance at 8.50%, the interest-only payment during the draw period is $354.17 a month — but when the draw period ends and repayment begins, the same $50,000 costs $492.37 a month over 15 years. That jump is the number to plan around before you borrow.
Try it now: open the free HELOC Calculator and enter your credit limit, the amount drawn, the rate and the draw and repayment periods. It works out the interest-only draw payment and the repayment payment that follows — no sign-up, no download.
What a HELOC Actually Is
A home equity line of credit is a loan secured by your home, but unlike a mortgage it does not hand you a lump sum. The lender approves a credit limit — say $100,000 — and you draw only what you need, when you need it. You pay interest only on the amount drawn, not on the full limit. Pay some back and the credit becomes available again, like a credit card. The line is secured by your home, which is why the rate is far lower than a credit card's — and why missing payments puts the home itself at risk.
A HELOC has two phases. The draw period, typically 10 years, is when you can borrow and usually pay interest only. The repayment period, typically 10 to 20 years, is when the line closes to new borrowing and you must pay back the balance with principal and interest. The payment shock between the two phases is the most common HELOC surprise: borrowers who planned around a $354 monthly payment suddenly owe $492 on the same balance.
How Much Can You Borrow?
Lenders limit the total debt on your home — your mortgage plus the HELOC — to a percentage of the home's value, usually 80% to 85%. This is the combined loan-to-value ratio, or CLTV. The worked example below uses 80%:
| Step | Figure |
|---|---|
| Home value | $400,000 |
| Maximum total debt at 80% CLTV | $320,000 |
| Minus current mortgage balance | − $250,000 |
| Maximum HELOC line | $70,000 |
Your equity is $150,000 ($400,000 minus $250,000), but the line is smaller than your equity because the lender caps total debt at 80% of value. Your credit score, income and debt-to-income ratio also matter — a strong profile gets the full 80%, a weaker one less. Lenders also charge fees: application fees, appraisal fees, annual fees and sometimes early-closure fees if you shut the line within a few years. Ask for the full fee list before you sign, not just the rate.
Worked Example: $50,000 at 8.50% — Draw, Then Repayment
Using the calculator's defaults — a $100,000 line, $50,000 drawn, 8.50% rate, a 10-year draw period and a 15-year repayment period:
| Phase | Monthly payment on $50,000 | What the payment covers |
|---|---|---|
| Draw period (interest-only) | $354.17 | Interest only — the balance stays $50,000 |
| Repayment over 15 years | $492.37 | Principal + interest — the balance falls to zero |
| Repayment over 20 years | $433.91 | Principal + interest, stretched thinner |
The jump from $354.17 to $492.37 is a 39% rise on the same balance, and it arrives exactly when you can no longer draw. If you drew the full $100,000 line instead, the interest-only payment is $708.33 a month — and the 15-year repayment payment would be $984.74. Size the line for the repayment payment, not the draw payment: if you could not afford $492 a month on $50,000, do not borrow $50,000.
Monthly payment on a $50,000 HELOC balance at 8.50%, by phase — hover or tap each bar for details.
The Rate Is Variable — and Prime Just Moved
Almost every HELOC charges a variable rate: the prime rate plus a margin the lender sets for you. Prime is 7.00% as of November 2026 — the Federal Reserve raised its target range to 3.75%–4.00% on September 16, 2026, lifting prime from 6.75%, and held rates steady at its October 28 meeting. The next decision is December 8–9, 2026. A typical HELOC margin is around 1.50%, which is how the calculator's 8.50% default arises: 7.00% prime plus a 1.50% margin.
Every quarter-point move in prime moves your payment. On a $50,000 balance, a 0.25% rise adds $10.42 a month to the interest-only payment; on $60,000 it adds $12.50. The rate can also fall, which is the upside of variable pricing — but budget for the rate rising, not falling. By law, a variable-rate plan secured by your home must carry a lifetime cap on how high the rate can go, so check the cap in the agreement: it is the worst case you are signing up for.
What You Can Use It For — and the Tax Rule
Common uses are home renovations, consolidating higher-interest debt, and covering large one-off costs such as education. The tax treatment depends on the use: interest on home equity debt is generally deductible only when the money is used to buy, build or substantially improve the home that secures the loan. Borrow to renovate the kitchen and the interest may be deductible; borrow for a holiday or to pay off credit cards and it generally is not. The rules sit in IRS Topic No. 504 — confirm your own situation with a tax professional, because the deduction also interacts with the overall mortgage-interest limits.
Renovations are the strongest use case for a HELOC: you draw in stages as the work progresses and pay interest only on what you have drawn, which a lump-sum loan cannot do. Debt consolidation can work too, but only if the HELOC rate is genuinely lower than the debt it replaces and you do not run the cards back up — swapping unsecured debt for debt secured by your home raises the stakes of a missed payment.
HELOC vs Home Equity Loan vs Cash-Out Refinance
| Feature | HELOC | Home equity loan | Cash-out refinance |
|---|---|---|---|
| How you get the money | Draw as needed, up to a limit | One lump sum | One lump sum, replaces your mortgage |
| Rate | Variable (prime + margin) | Usually fixed | Usually fixed |
| Payment during use | Interest-only in the draw period | Principal + interest from day one | Principal + interest from day one |
| Best for | Staged costs (renovations) | One known cost | Large sum + a better mortgage rate |
| Main risk | Payment shock at repayment | Fixed payment, less flexible | Resets your mortgage clock |
If you need a known amount once, a fixed home equity loan is usually simpler and safer. If you might refinance your whole mortgage anyway, a cash-out refinance can be cheaper than a second loan. The HELOC wins when the spending is spread over months and the total is uncertain — the classic renovation.
Three risks to weigh before you sign: first, the rate can rise — prime moved 0.25% in September 2026 alone. Second, the repayment payment is far higher than the draw payment, and it starts whether or not your income has risen. Third, your home is the collateral: a lender can freeze or reduce an undrawn line if your home's value falls, and in the worst case foreclose. Never borrow against your home for spending that does not build value or cut a higher cost.
How to Decide in Ten Minutes
1. Work out the maximum line from your home value and mortgage balance at 80% combined loan-to-value. 2. Run the calculator with the amount you actually plan to draw and check the repayment payment, not just the draw payment. 3. Add 1% to the rate and check you could still afford the payment — that is one more prime rise. 4. Compare with a fixed home equity loan for the same amount, and with waiting: if the spending can wait a year, the interest you never pay is the cheapest money of all.
Frequently Asked Questions
What is a HELOC?
A home equity line of credit is a revolving credit line secured by your home. The lender approves a limit, you draw what you need, you pay interest only on the amount drawn during the draw period (typically 10 years), and then you repay the balance with principal and interest over the repayment period (typically 10 to 20 years).
How much can I borrow with a HELOC?
Most lenders cap your mortgage plus the HELOC at 80% to 85% of your home's value. On a $400,000 home with a $250,000 mortgage, an 80% cap allows a maximum line of $70,000. Your credit score, income and debt-to-income ratio can lower that figure.
What is the monthly payment on a $50,000 HELOC?
At 8.50% — prime at 7.00% plus a 1.50% margin — the interest-only payment is $354.17 a month. When repayment starts, the same balance costs $492.37 a month over 15 years, or $433.91 over 20 years.
Is HELOC interest tax deductible?
Generally only when the borrowed money is used to buy, build or substantially improve the home that secures the loan. Interest on a HELOC used for other purposes — holidays, cars, paying off credit cards — is generally not deductible. Confirm your situation with a tax professional.
Can a HELOC rate go up?
Yes — almost all HELOCs are variable-rate, tied to the prime rate plus a margin. Prime rose from 6.75% to 7.00% in September 2026, and every quarter-point move changes your payment. The agreement must state a lifetime cap on the rate.
What happens when the draw period ends?
The line closes to new borrowing and the repayment period begins: you must pay principal and interest on the balance, which is why the payment jumps — from $354.17 to $492.37 a month on $50,000 at 8.50% over 15 years. Paying extra principal during the draw period softens that jump.
Sources: AsadWebs HELOC Calculator (defaults $100,000 line, $50,000 drawn, 8.50%, 10-year draw, 15-year repayment; all payment figures verified by independent calculation); Federal Reserve H.15 prime rate 7.00% since September 17, 2026, target range 3.75%–4.00%, held October 28, 2026; CFPB — home equity lines of credit; IRS Topic No. 504. Rates are illustrative for a variable-rate line; your lender's margin, cap and fees will differ. This article explains the maths and is not financial advice.
Related reading: Are Mortgage Points Worth It? The Break-Even Test on a $400,000 Loan · How to Calculate Mortgage Refinance Savings: $278 a Month From 7% to 5.5% · What Is a Good Debt-to-Income Ratio?
Sorting out your finances? If you are planning a mortgage, a loan application or a debt payoff plan, book a free consultation with Asad Webs — we will help you work out the numbers before you apply.
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