Start with your equity
Equity is what your home is worth minus what you still owe on it. If your home is worth $500,000 and you owe $250,000, you have $250,000 in equity.
Lenders don't let you borrow all of it. They cap the total of every loan on the home at a percentage of its value, called the combined loan-to-value (CLTV). The estimates in our calculator use up to 80% for a primary residence and 75% for an investment property. In the example above, 80% of $500,000 is $400,000. Subtract the $250,000 you owe and the estimated line is about $150,000.
The draw period and the repayment period
Most HELOCs have two phases. During the draw period, which can last up to about 10 years, you can borrow against your line. When it ends, you can no longer borrow, and the repayment period begins, often lasting 10 to 20 years. Payments are frequently higher in repayment, so it's worth planning for that from day one.
How the rate works
Many HELOCs carry a variable rate, so the payment can change from month to month. Some let you lock all or part of the balance at a fixed rate.
The AXEN Home Equity Line offered through this site works a little differently: the full line (minus the origination fee) is drawn when the loan closes, at a fixed rate. As you pay it down, you can draw again during the draw period. Each new draw is priced on the day you take it, at the Prime Rate plus a fixed margin, so a later draw can carry a higher rate than the first one.
What it takes to get approved
- Equity: enough room under the CLTV limit for the line you want.
- Credit: your score affects pricing and which options are available.
- Income: verified income and employment, so the payment fits.
- The property: a valuation and a property condition check. Some files qualify without a traditional appraisal.
Checking your rate starts with a soft credit pull that doesn't affect your score. If you move forward with a full application, a hard pull is required.
A quick word on taxes
Under IRS Publication 936, interest on a home equity loan or line is deductible only if the money is used to buy, build, or substantially improve the home that secures it. Using it to pay off credit cards, for example, doesn't qualify. A tax professional can tell you how this applies to you.
Use it for things that last
Your home secures the line, so if you can't repay it, you could lose your home. That's why I generally steer people toward uses that build value or improve their position: renovations, paying off higher-interest debt with a real plan, or investing. I'd skip using it for a car or a vacation.
Common questions
How long is a HELOC draw period?
Many HELOCs have a draw period of up to about 10 years, followed by a repayment period of 10 to 20 years when you can no longer borrow and payments are often higher. Your exact terms depend on the product.
Is HELOC interest tax deductible?
According to IRS Publication 936, interest on a home equity loan or line of credit is deductible only if the money is used to buy, build, or substantially improve the home that secures it. Talk with a tax professional about your situation.
Can I lose my home with a HELOC?
Yes. A HELOC is secured by your home, so if you fall behind or can't repay, you could lose it. That's why it's best used for things that create lasting value.