Home Equity Line of Credit Rates

What is a home equity line of credit, or HELOC?

A HELOC is a variable-rate home equity loan that works more like a credit card. Instead of an up-front lump payment, you’re given a line of credit that’s available for a set time frame, usually up to 10 years. This is called the draw period — during this time, you can withdraw money as you need it. You can get a HELOC with an interest-only draw period or one that allow you to pay interest and principal, helping you pay the line of credit off faster.

When a line of credit has expired, you enter the repayment period, which can last up to 20 years. You’ll pay back the outstanding balance that you borrowed, as well as any interest owed. A lender may allow a renewal of the credit line.

HELOC rates are variable and are tied to a benchmark interest rate. As the prime rate moves up or down, so does your HELOC rate. Payments will vary depending on the interest rate and how much credit you have used. However, some lenders will allow you to convert an adjustable rate into a fixed rate.

What are the benefits of a HELOC?

If you need money over a staggered period — for example, at the beginning of each semester for the next four years to pay for a child’s college tuition or for a remodeling project that will take three years to finish — a line of credit is ideal. It gives you the flexibility to borrow only the amount you need, when you need it.

And if you borrow relatively small amounts and pay back the principal quickly, a line of credit can cost less than a home equity loan.

HELOC FAQs

What is a HELOC?

HELOC stands for home equity line of credit. It is a loan based on the equity of the borrower’s home. Similar to how a credit card works, it allows you to take out money and pay it back down at your own pace up to a certain amount during the draw period.

Where can I get a HELOC?

A variety of banks and lenders offer HELOC. Our storefront can help you target the best opportunities and rates in your area. It’s always a good idea to shop around with a few lenders to compare rates, fees and loan terms.

Why should I take out a HELOC?

A HELOC can be a good idea for a number of reasons. Maybe you need to fund a home improvement project or, maybe, you might even be trying to finance your education. It is also flexible, especially if you don’t need all the money upfront. When a HELOC is not a good idea, however, is when you aren’t in a position to pay it back or cope with the interest.

What is a HELOC draw period expiration?

The draw period expiration of a HELOC refers to a time when you can no longer draw any remaining loan amounts. This draw period expiration will vary based on the lender and the payment period you have signed on for. Some can last as long as 20 years. At the end of the draw period the facility converts to a fixed repayment schedule, like a mortgage, where you make equal monthly payments.

Is the interest paid on a HELOC tax-deductible?

Yes, so long as the HELOC is used for home-related investments (home improvements). Interest is capped at $750,000 on home loans (combined mortgage and HELOC/HE loan). So if you had a $600,000 mortgage and $300,000 HELOC for home improvements on a house worth $1,200,000, you can only deduct the interest on the first $750,000 of the $900,000 you borrowed.

If you are using a HELOC for any other purpose other than home improvement (such as starting a business or consolidating high-interest debt), you cannot deduct interest under the new tax law.

If you are using a HELOC for any other purpose other than the home, you cannot deduct interest under the new federal tax laws (as of 06/13/2018).