What Is a HELOC?
Home Equity Line of Credit Explained Simply
Last verified: April 2026
The one-sentence answer: HELOC is pronounced HEE-lock. It stands for Home Equity Line of Credit. It is a line of credit that uses your home as security.
How a HELOC works, step by step
- You apply - You apply at a bank, credit union, or online lender. They check your income, credit score, and how much equity you have in your home.
- They set a credit limit - Based on your home's appraised value and your existing mortgage balance, the lender sets a maximum credit limit. Most lenders allow you to borrow up to 85% of your home's value minus what you owe on your mortgage.
- The draw period begins (typically 10 years) - You can borrow money up to your credit limit, pay it back, and borrow again. During this phase, minimum payments are usually interest-only on what you have drawn.
- The repayment period begins (typically 20 years) - The draw period ends. You can no longer borrow. The outstanding balance is repaid in full over the next 20 years in fixed monthly instalments.
- Closing - At the end of year 30, your HELOC is fully repaid and the lien on your home is released.
The draw period - what it actually means
During the draw period, your HELOC works exactly like a credit card, except it is secured by your home and the rate is much lower. You can borrow $5,000 this month, pay $3,000 back next month, borrow $8,000 in six months. You are free to use and repay the credit repeatedly, up to your approved limit.
The minimum monthly payment during the draw period is usually just the interest on your outstanding balance. Nothing goes towards the principal. On a $30,000 balance at 8.6%, the interest-only payment is about $215/month.
The variable rate - what it means for your payments
Almost all HELOCs have a variable interest rate. This means the rate is not fixed. It moves up and down based on the prime rate, which is a benchmark rate set by banks that tracks the Federal Reserve's decisions.
Your HELOC rate is usually expressed as: prime rate + margin. If the prime rate is 8.00% and your margin is 1.0%, your HELOC rate is 9.00%. If the prime rate rises to 9.00%, your HELOC rate becomes 10.00%.
Typical HELOC terms in April 2026
| Feature | Typical Value |
|---|---|
| Maximum CLTV (Combined Loan-to-Value) | 80-85% (some lenders up to 90%) |
| Starting rate (April 2026) | 8.6% APR (prime 8.00% + margin ~0.6%) |
| Rate type | Variable, tied to prime rate |
| Draw period | 10 years (some lenders offer 5 or 15) |
| Repayment period | 20 years |
| Closing costs | 2-5% or sometimes waived by lender |
| Minimum credit score | 620 minimum; 680+ for best rates |
| Minimum equity required | 15-20% of home value |
Is a HELOC the same as a second mortgage?
Technically yes. A HELOC is a second lien on your property, meaning it sits behind your first mortgage in priority. If you default and your home is sold, your first mortgage lender gets paid first, and the HELOC lender gets whatever is left.
However, a HELOC behaves differently from a traditional second mortgage (which is usually a fixed lump sum with fixed payments). A HELOC is revolving and flexible; a second mortgage is more like a copy of your first mortgage.
Who offers HELOCs?
HELOCs are offered by banks, credit unions, and online lenders. In April 2026, major providers include Rocket Mortgage, Figure, Spring EQ, Discover Home Loans, Bank of America, US Bank, PNC, Navy Federal Credit Union, TD Bank, and Third Federal. See our full lender comparison.
For the technical comparison with sister sites: homeequityloanvsheloc.com covers the HELOC vs home equity loan comparison with full industry vocabulary.