What is a HELOC and how does it work?

A HELOC (Home Equity Line of Credit) is a revolving line of credit secured by your home equity. Unlike a traditional loan, you can borrow up to your credit limit, repay it, and borrow again during the draw period (typically 5–10 years). During the draw period, you typically make interest-only payments. After the draw period ends, you enter the repayment period (10–20 years) where you pay principal and interest on the outstanding balance.

How is a HELOC different from a home equity loan?

A home equity loan gives you a lump sum at a fixed interest rate, with fixed monthly payments over a set term — similar to a second mortgage. A HELOC is a flexible revolving credit line with a variable interest rate. HELOCs are better for ongoing expenses where you need flexible access to funds (home renovations, business costs). Home equity loans are better for one-time large expenses where you want payment certainty.

What is the current HELOC interest rate?

HELOC rates are variable and tied to the prime rate. As of May 2026, the Federal Reserve's prime rate is 7.50%. Most HELOCs are priced at prime plus a spread (typically 0.5% to 1.5%), putting typical HELOC rates in the 8% to 9% range. Your specific rate depends on your credit score, loan-to-value ratio, and lender. Rates change when the Federal Reserve adjusts the federal funds rate.

Is HELOC interest tax deductible?

HELOC interest may be tax deductible if you use the funds to 'buy, build, or substantially improve' the home that secures the loan, under IRS rules after the Tax Cuts and Jobs Act of 2017. If you use HELOC funds for other purposes (debt consolidation, vacations, etc.), the interest is generally not deductible. Consult a tax professional for your specific situation, as limits and rules apply.

What are the risks of a HELOC?

The primary risk is that your home serves as collateral — if you miss payments, you could face foreclosure. Variable rates mean your payments can increase when interest rates rise. Over-borrowing against home equity reduces your financial safety margin. Additionally, if home values drop, you may end up owing more than your home is worth. HELOCs also typically have variable rates that reset with prime rate changes, creating payment uncertainty.

HELOC Calculator — CalcRates

Home Value

$100K$2M

Current Mortgage Balance

$0$1.5M

Maximum LTV (Loan-to-Value)

75%

80%

85% (typical max)

HELOC Interest Rate (Current prime: 7.50%)

5%15%

Amount to Borrow

$0$175,000

Draw Period

5 years

10 years (most common)

Repayment Period

10 years

15 years

20 years (most common)

Available Credit Line

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Draw Period Payment (interest only)

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per month

Repayment Period Payment (P&I)

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per month

Total Interest Over Life of HELOC

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Home Value Breakdown

Mortgage Balance HELOC Amount Remaining Equity

LTV Ratio

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Home Equity

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Total Cost

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About HELOC Rates

HELOC rates are variable and tied to the prime rate. Current prime rate: 7.50% (Federal Reserve, May 2026). Prime + typical spread of 0.5% = 8.0% estimated HELOC rate.

Rates can change when the Federal Reserve adjusts the federal funds rate. Your actual rate will depend on your credit score, lender, and loan-to-value ratio.

Important: HELOCs use your home as collateral. Missing payments could result in foreclosure. Only borrow what you can confidently repay.

Frequently Asked Questions

A HELOC (Home Equity Line of Credit) is a revolving line of credit secured by your home equity. Think of it like a credit card backed by your home. During the draw period (typically 5–10 years), you can borrow up to your credit limit, make interest-only payments, repay, and borrow again. After the draw period, you enter the repayment period (10–20 years) where you make principal and interest payments on the outstanding balance until it is paid off.

A home equity loan provides a lump sum at a fixed interest rate with fixed monthly payments — essentially a second mortgage. A HELOC is a flexible revolving credit line with a variable rate. Home equity loans offer payment predictability; HELOCs offer flexibility to draw funds as needed. For ongoing projects like home renovations happening over time, a HELOC is often more practical. For a single known expense, a home equity loan may be better.

As of May 2026, HELOC rates are typically in the 8% to 9% range, tied to the prime rate of 7.50%. HELOCs are priced at prime plus a lender margin (typically 0.5% to 1.5%). Your rate depends on your credit score, combined loan-to-value (CLTV) ratio, and your lender. Rates fluctuate when the Federal Reserve changes the federal funds rate, meaning your HELOC payment can increase or decrease over time.

Under current IRS rules (post-2017 Tax Cuts and Jobs Act), HELOC interest is deductible only if you use the borrowed funds to "buy, build, or substantially improve" the home that secures the loan. Using HELOC funds for debt consolidation, education, vacations, or other purposes makes the interest non-deductible. Always consult a qualified tax professional to determine deductibility in your specific situation.

Key risks include: (1) Foreclosure risk — your home is collateral, so missed payments can lead to losing your home. (2) Variable rate risk — if interest rates rise sharply, your payments increase. (3) Payment shock — when the draw period ends and the repayment period begins, payments can jump significantly. (4) Overborrowing — easy access to credit can lead to taking on more debt than is prudent. (5) Home value decline — if your home's value drops, you could end up underwater on your combined loans.

For educational purposes only. Not financial advice. Consult a qualified financial advisor.

Rate Reference

Prime Rate	7.50%
Typical HELOC	8.0–9.5%
Max LTV (typical)	85%

Source: Federal Reserve, May 2026

HELOC Calculator