HELOC basics: how a home equity line of credit works today
October 22, 2026
Plenty of homeowners sitting on equity never touch it, mostly because they assume tapping it means a big refinance. A home equity line of credit, usually called a HELOC, offers a different route. You borrow what you need, when you need it, and leave your existing first mortgage alone.
A HELOC works like a revolving credit line secured by your home. Lenders typically set a credit limit based on the equity you have built, and you can draw against that limit during a set period, often ten years. Most draw periods allow interest-only payments, which keeps monthly obligations light while you are spending. Once the draw period ends, the loan moves into repayment, and payments rise because principal starts getting paid down along with interest.
Rates on most HELOCs are variable, tied to a benchmark index plus a margin set by the lender. That means your payment can move up or down as broader rates shift, so the amount you pay in year one may not match year five. Some lenders offer a fixed-rate option on part or all of a balance, which can make budgeting easier if you expect to carry a balance for a while. Closing costs and appraisal fees vary, and some lenders waive them if you keep the line open for a set period. Reading the margin, the rate cap, and any early closure fee matters as much as the headline rate.