How Does a Home Equity Line of Credit Work?

Takeaways: A HELOC Lets You Borrow From Your Home's Equity

• A HELOC lets you borrow against your home's equity as a flexible, revolving line of credit, so you can draw funds as needed. Your home serves as collateral, which typically means lower interest rates than credit cards or personal loans but also means your home might be at risk if you can't repay.
• HELOCs have a draw period (typically 10 years) when you can access funds and pay interest, followed by a repayment period (typically 15 years) when you repay the remaining principal and interest on a regular payment schedule.
• Most HELOCs carry a variable interest rate that can fluctuate monthly, though some lenders offer a fixed-rate advance option for more payment predictability.
• Common uses include home improvements, debt consolidation, college expenses and bridging the gap between buying and selling a home.
• HELOC alternatives might include home equity loans, cash-out mortgage refinancing and personal loans depending on your financial situation.

A home equity line of credit, or HELOC, is a loan that allows you to borrow against your home's equity. It's an open-ended line of credit, meaning you can access money when you need it during the draw period instead of borrowing the whole amount at once. Your home acts as collateral.

Why HELOCs Are Popular in 2026

The average homeowner had about $295,000 in home equity as of the end of 2025, according to Cotality. That's 0.5% lower than the same time in 2024 but still historically high, the report notes.

As of the end of 2025, new HELOC originations grew 20% year-over-year, according to the 2026 TransUnion U.S. Consumer Credit Market Report.

A HELOC lets you tap your equity without touching your original loan. That makes it an attractive option when your current mortgage rate is lower than today's rates.

Using a HELOC for home upgrades or expansions could help some borrowers stay put for a while longer instead of moving into a larger home.

Uses of a HELOC

A HELOC is often available at a lower interest rate than many other loan products. This is because your home acts as collateral for the loan. You can use a HELOC for a variety of needs.

Common uses for a HELOC include:

• Large home improvements, like an addition or renovation.
• Smaller home improvements, like replacing windows or increasing energy efficiency.
• College tuition and expenses.
• Consolidating high-interest debt such as credit card balances.
• Selling one home and buying another simultaneously.

Important: Make sure you can pay back your loan, or you could risk losing your home. Using a HELOC for credit card debt consolidation might reduce the interest you pay, but it's important to identify the underlying cause of your debt first so you don't end up charging to your credit cards again and increasing your debt even more.

How Does a HELOC Work?

Here's how HELOCs work from the draw period to the payoff.

Draw Period and Interest Payments

A HELOC is an open-ended loan that works much like a credit card. You'll first have a draw period during which you can access funds up to your credit limit. Each withdrawal from your HELOC is called an advance.

The financial institution may establish rules regarding your advances. For example, you may be required to take a minimum advance of $100.

You can repay the borrowed amount on the revolving credit account, then borrow it again, similar to a credit card.

At BECU, for example, you could access funds for 10 years up to your credit limit. The line of credit is listed with other accounts in Online Banking. You can transfer funds from the HELOC account to your checking account on the same day.

During the draw period, you're usually only required to make a monthly payment of the accrued interest (minimum payments may apply). But if you make interest-only payments, you could have higher overall costs and higher monthly payments in the long term. To reduce costs and adjust to your eventual payment amount, try to pay some of the principal in addition to the interest. This will also help you pay your loan off earlier.

Repayment Period

Once your draw period ends, you will no longer have access to funds from your HELOC. If your HELOC account has an outstanding balance, the minimum payment will include both principal and interest payments. Your interest rate may be fixed or variable, depending on your lender and loan.

At BECU, the repayment period is 15 years, but this repayment period can vary by bank or credit union. At some point, you must pay off the remaining balance.

HELOC Example

You owe $300,000 on your traditional mortgage, but your home value is $700,000. You applied for and were approved for a $50,000 HELOC.

For the next 10 years, you can withdraw some or all of the $50,000 HELOC at any time, pay off what you borrowed, and then borrow again. Every month, you'll pay your primary mortgage and a separate payment on the HELOC amount. However, you're only required to pay the interest on the HELOC.

After 10 years, your HELOC goes into a repayment period. You can no longer withdraw money from the line of credit and instead repay what you owe.

As an example, suppose you borrowed $25,000 of your $50,000 HELOC and already repaid $5,000. During the 15-year repayment period, you will repay the remaining $20,000 balance in monthly installments.

Variable Interest Rate vs. Fixed Interest Rate

Most HELOCs have a variable annual percentage rate, or APR, which means the interest rate can go up or down on any advance you take. For example, the APR could be based on the Wall Street Journal Prime Rate in effect on the last day of the previous month, plus a margin (a percent) your lender sets that is added to the index.

If a loan has an adjustable interest rate, the amount due can change alongside interest fluctuations. Even if the borrowed amount stays the same, the payment due will increase if the index increases. If the index decreases, the payment amount could decrease. In a rising interest rate environment, make sure you can keep up with payments.

Each HELOC will charge an interest rate maximum and minimum APR. For example, at BECU, this APR will not exceed 18% or go below 3.25%.

Your HELOC rate and loan amount depend on your credit history, occupancy type (whether it's your primary home, second home or a rental property, for example) and other factors. A range of rates will typically be available, and the rate can fluctuate monthly over the loan's life.

Fixed Interest Option

Some HELOC lenders offer a fixed-rate advance option. (BECU offers up to three fixed-rate advances at one time.) With these, you borrow a lump sum at a fixed interest rate and a fixed term. The lump sum becomes part of your overall balance on your credit line. As you pay down the principal on your fixed rate advance, that amount becomes available to use on your credit line.

For instance, if you take a $10,000 fixed-rate advance and pay $3,000 of it back, that $3,000 becomes available again on your revolving credit line. This gives you flexibility while keeping that portion of your balance at a predictable rate.

The minimum amount for the lump sum may differ. At BECU, the minimum is $5,000.

Depending on the current index, these fixed rates may be higher than the variable rate but provide payment consistency. The fixed rate payment typically includes principal and interest.

How Much Can I Borrow With a HELOC?

The amount you can borrow depends, in part, on your home's equity. Different banks and credit unions set maximum borrowing limits. At BECU, for example, the limit is up to $500,000. However, your limit will depend on other variables, including your occupancy type, income and combined loan-to-value ratio.

Your combined loan-to-value ratio compares the total amount you owe across all loans secured by your home (including your mortgage and the HELOC) to your home's current appraised value.

Someone who has paid down more of their original mortgage, has a high credit score, strong credit history and a low combined loan-to-value ratio may be able to borrow more money with a HELOC.

How Much Does a HELOC Cost?

Be sure to compare fees between various HELOC lenders regarding potential costs. Costs can vary depending on your institution, your state of residence and other factors.

Some financial institutions charge fees and other closing costs when you get a HELOC. BECU doesn't charge origination fees; however, when you close and pay off a BECU HELOC, you will be charged a reconveyance fee to remove the lien from your property.

Some lenders also might require an appraisal to get a HELOC. BECU requires appraisals for HELOCs over $400,000, for example.

Check your financial institution's account disclosures (PDF) for details about what fees are charged.

Here are a few examples of potential fees lenders might charge:

• Application fees
• Origination fees
• Appraisal costs
• Title insurance fees
• Document mailing fees
• Escrow fees
• Attorney fees

While your HELOC account is open, the bank or credit union may also charge ongoing or intermittent fees, including:

• Account maintenance fees.
• Inactivity fee if you're not using your line of credit.
• Minimum balance fee if you're required to keep a certain loan balance.
• Pre-payment penalty fees.

How To Qualify for a HELOC

As of early 2026, reports indicate that financial institutions may be changing or tightening requirements around HELOCs.

New requirements might include changing credit limits, borrowed amounts or required minimum withdrawals from your HELOC.

Check your credit score and compare requirements across different HELOC lenders. Remember that the HELOC will affect your credit score, so ensure you can make timely payments.

HELOCs vs. Alternatives

A HELOC allows you to borrow money using your home as collateral, and you can withdraw funds over time. Compare options from multiple lenders.

• Home equity loan: Borrow against your home's value, similar to a HELOC, but typically at a fixed interest rate. The loan is also disbursed (given to you) in a lump sum, without a HELOC's draw and repayment periods or credit limit option. (BECU doesn't offer this type of loan.)
• Cash-out mortgage refinance: You refinance your current mortgage, obtaining a new, larger mortgage. The difference between your previous home value and the current home value is money you can use as cash. A cash-out refinance can make sense if your new rate is lower than your previous rate, and your home is worth more than you bought it for.
• Bridge loans: These are special loans for homebuyers who want to buy a new home and sell an existing one at the same time, using existing home equity as collateral. In seller's markets, these loans can help buyers compete but do often have higher interest rates than traditional mortgages and have short repayment windows. (BECU doesn't offer a separate bridge loan. Members can talk to a mortgage advisor about other flexible loan options to meet their needs.)
• Home improvement loan: Typically, this loan is not secured by property and used only for home improvement. It also may have different borrowing limits and terms.
• Personal loans: A personal loan does not require home equity but limits you to a lower amount, which is provided all at once.
• Credit cards: You can find credit cards that offer airline miles or cash-back refunds, but these tend to have relatively high and variable interest rates that apply to any balance you carry from month to month. Like a HELOC, you can spend and repay every month.

HELOC FAQs

Can I Get a HELOC for Any Type of Property?

Your financial institution may limit which types of property are eligible for a HELOC. For example, BECU offers a HELOC for single- and multi-family homes, town homes, condos and manufactured homes meeting specific requirements.

Can I Get a HELOC for Any Type of Occupancy?

Your financial institution may limit which types of occupancy are eligible for a HELOC. For example, BECU offers a HELOC for a primary residence, second home, vacation home, investment property or rental property.

Is a HELOC Interest Tax Deductible?

HELOC interest may be tax-deductible, but eligibility depends on factors such as how you used the funds and the tax year. Consult with your financial advisor, tax advisor or attorney for advice, and read more at the Internal Revenue Service website.

Which Is Better? A HELOC or Home Equity Loan?

If you make the bulk of your large purchases immediately or have one project in mind, a home equity loan could be a better fit. But you may prefer a HELOC if you'll use the money for multiple projects over an extended period. (BECU doesn't offer a separate home equity loan; however, the fixed-rate advance option functions much like a home equity loan within a HELOC.)

With a HELOC, you can avoid accruing interest on money before you need it. You can borrow and repay as you go for the length of your draw period.

How Often Can the Interest Rate Change on a HELOC?

If you have a variable-rate HELOC, your HELOC interest rate may change periodically according to an index formula and terms of your agreement. Your bank or credit union must tell you your new rate on your periodic statement sent before your next payment's due date. At BECU, your variable rate may change monthly depending on changes with the index.

The Big Picture

Whether you plan to add a new room to your house, expand your kitchen or complete another project, a HELOC can provide funds to achieve your goals. Just be sure you can afford repayments, even if interest rates rise.

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