# What Is a Home Equity Line of Credit (HELOC)? By Opendoor Editorial Team | 2026-06-15 title: "What Is a Home Equity Line of Credit (HELOC)?" slug: what-is-a-home-equity-line-of-credit primary\_keyword: what is a home equity line of credit publish\_date: 2026-07-14 # What Is a Home Equity Line of Credit (HELOC)? A home equity line of credit (HELOC) is a revolving credit line secured by the equity in your home — the difference between your home's current [market value](https://www.opendoor.com/articles/fair-market-value-of-a-home-what-it-means-and-how-to-find-it) and your remaining mortgage balance. HELOCs work like a credit card: you draw funds as needed during a set period, pay interest only on what you borrow, and replenish the available balance as you repay. This guide covers how a home equity line of credit works, what it costs, how it compares to home equity loans and cash-out refinances, and what happens to a HELOC when you sell your home. ## Key Takeaways - A HELOC lets you borrow against your home equity during a draw period — commonly 10 years — and repay the balance over a repayment period of 20 years (CFPB). - Most HELOCs carry variable interest rates tied to the prime rate, so monthly payments rise and fall with Federal Reserve rate decisions (Bank of America). - Lenders commonly allow borrowing up to 85% of appraised home value minus the remaining mortgage balance (Bankrate). - If you sell your home before paying off a HELOC, the outstanding balance is paid from sale proceeds at closing — the title company handles the payoff directly (CFPB). - A HELOC is not the only way to access equity — selling for a cash offer converts all your equity to cash without adding new debt. ## How a HELOC Works A HELOC has two phases: a draw period and a repayment period. **Draw period (commonly 10 years).** During this phase, you borrow against your credit limit as needed and make interest-only payments on the amount you've drawn. If you borrow $20,000 from a $100,000 line, you pay interest on $20,000. As you repay, the available balance replenishes — you can draw again without reapplying. **Repayment period (commonly 20 years).** Once the draw period ends, you can no longer borrow. Your remaining balance converts to a principal-and-interest loan, and monthly payments increase because you're now paying down the principal. The CFPB notes that [certain HELOCs require a balloon payment](https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-home-equity-loan-and-a-home-equity-line-of-credit-heloc-en-247/) — the full balance due at once — at the end of the draw period rather than a gradual repayment. ### How your borrowing limit is calculated Lenders determine your HELOC credit limit using a combined loan-to-value (CLTV) formula. The standard cap is [85% of your home's appraised value](https://www.bankrate.com/home-equity/what-is-heloc/) minus your remaining mortgage balance. **Example:** Your home appraises at $400,000. You owe $250,000 on your mortgage. At an 85% CLTV cap: $400,000 × 0.85 = $340,000 − $250,000 = **$90,000 HELOC credit limit**. To [find out what your home is worth](https://www.opendoor.com/articles/whats-your-home-worth-take-these-steps-to-find-out) before applying, get a comparative market analysis or a professional appraisal. Lenders require a formal appraisal as part of the HELOC application — here's [what appraisers look for](https://www.opendoor.com/articles/home-appraisal-tips-and-what-is-home-appraisal-based-on) when they evaluate your property. ### Qualification requirements Lenders evaluate four factors: equity in the home, credit score, debt-to-income (DTI) ratio, and income history. [U.S. Bank requires a minimum FICO score of 660](https://www.usbank.com/home-loans/home-equity/home-equity-line-of-credit.html); industry standards range from 620 to 700 depending on the lender and loan amount. A lower DTI ratio (below 43%) and stable employment history strengthen your application. ## How HELOC Rates and Payments Work Most HELOCs carry [variable interest rates indexed to the prime rate](https://www.bankofamerica.com/mortgage/learn/what-is-a-home-equity-line-of-credit/), which tracks the federal funds rate set by the Federal Reserve. When the Fed raises rates, HELOC payments increase; when the Fed cuts, payments decrease. Understanding [how mortgage rates work](https://www.opendoor.com/articles/how-mortgage-rates-work) helps you anticipate these shifts. **Payment example on a $50,000 HELOC at 8.5% variable APR:** - During the draw period (interest-only): $50,000 × 8.5% ÷ 12 = **$354 per month** - During the repayment period (principal + interest over 20 years): approximately **$434 per month** That $80-per-month jump catches borrowers off guard. [Bankrate's HELOC analysis](https://www.bankrate.com/home-equity/heloc-payment-shock/) shows that interest-only draw-period payments lead to payment shock when the repayment period begins — your balance hasn't decreased, but your required payment has. ### Common HELOC fees HELOC closing costs range from [2% to 5% of the credit line](https://www.bankrate.com/home-equity/closing-costs/). On a $100,000 HELOC, that's $2,000–$5,000. Additional fees include annual maintenance fees ($50–$100 per year at lenders including Bank of America and Citizens Bank), per-draw transaction fees, and early-closure fees if you close the line within 24–36 months of opening ([Bankrate](https://www.bankrate.com/home-equity/heloc-fees/)). ## HELOC vs Home Equity Loan A home equity loan delivers a lump sum at a fixed interest rate; a HELOC provides revolving access at a variable rate. Both are second mortgages — your home is collateral for both ([CFPB](https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-home-equity-loan-and-a-home-equity-line-of-credit-heloc-en-247/)). | Feature | HELOC | Home equity loan | | --- | --- | --- | | Rate type | Variable (tied to prime) | Fixed for the life of the loan | | Disbursement | Revolving — draw as needed | Lump sum at closing | | Draw period | 10 years (common) | None — full amount disbursed upfront | | Repayment term | 20 years after draw period ends | [5–30 years](https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-home-equity-loan-and-a-home-equity-line-of-credit-heloc-en-247/) | | Payment predictability | Changes with rate movements | Fixed monthly payment | | Best for | Ongoing expenses (renovations in phases, tuition) | One-time expenses (roof replacement, debt payoff) | **When a HELOC fits better:** You need funds at different times — renovating a kitchen this year and a bathroom next year — and want to pay interest only on what you've used. A HELOC gives you flexibility to draw incrementally. **When a home equity loan fits better:** You need a specific dollar amount for a single project and want a [predictable monthly payment](https://www.opendoor.com/articles/what-is-a-mortgage-and-how-does-it-work) that won't shift with the prime rate. ## Pros and Cons of a HELOC **Pros:** - **Flexible borrowing.** Draw what you need, when you need it, up to your limit — no need to take the full amount at once. - **Lower initial payments.** Interest-only payments during the draw period keep monthly costs lower than a full principal-and-interest loan. - **Tax deductibility.** HELOC interest is deductible when funds are used to buy, build, or substantially improve the home securing the loan (IRS Publication 936). Consult a tax advisor for your situation. - **Revolving access.** As you repay, your available credit replenishes — useful for phased home-improvement projects that [increase your home's value](https://www.opendoor.com/articles/how-to-increase-home-value). **Cons:** - **Variable-rate risk.** If the prime rate rises 2 percentage points, that $354 monthly payment on a $50,000 balance jumps to $437 — a 23% increase. - **Your home is collateral.** Defaulting on a HELOC [can lead to foreclosure](https://www.nerdwallet.com/article/mortgages/heloc-foreclosure), the same as defaulting on a primary mortgage. - **Underwater risk.** If your home's value drops below the combined balance of your mortgage and HELOC, you owe more than the property is worth. - **Payment shock.** The transition from interest-only to principal-and-interest payments at the end of the draw period raises monthly costs without warning. A HELOC makes less sense if you plan to sell within two to three years. Closing costs of 2–5%, annual fees, and rate volatility can erode the financial benefit before you've drawn enough value from the line. ## HELOC vs Cash-Out Refinance vs Selling Three ways to access home equity — each with different trade-offs. | Factor | HELOC | Cash-out refinance | Selling your home | | --- | --- | --- | --- | | Rate type | Variable | Fixed (replaces existing mortgage) | N/A — no new debt | | Funding speed | 2–6 weeks for approval and funding | 30–45 days to close the new mortgage | Opendoor Cash Offer in 24 hours; [close in as few as 14 days](https://www.opendoor.com/articles/how-long-does-closing-take) | | Total cost | 2–5% closing costs + ongoing interest | 2–6% closing costs + higher rate on full balance | [Agent commissions + closing costs](https://www.opendoor.com/articles/how-much-does-it-cost-to-sell-a-house), or 5% service fee with Opendoor | | Impact on existing mortgage | Adds a second lien; primary mortgage unchanged | Replaces primary mortgage at a new rate | Pays off all liens at closing | | Who it fits | Homeowners staying long-term who need revolving funds | Homeowners who want to lock in a lower rate and cash out equity | Homeowners ready to move who want full equity in cash | A cash-out refinance replaces your entire mortgage at a new rate and hands you the difference. If your current rate is lower than today's rates, refinancing increases your monthly cost on the full balance — not just the amount cashed out. Selling converts all your equity to cash with no new debt. Here's [what a cash offer on a house means](https://www.opendoor.com/articles/what-is-a-cash-offer-in-real-estate-and-why-consider-it) and why it eliminates the variable-rate risk and second-lien complexity of a HELOC. For a side-by-side breakdown of costs, see [how selling to Opendoor compares to a traditional home sale](https://www.opendoor.com/articles/how-selling-to-opendoor-compares-to-a-traditional-home-sale). ## What Happens to a HELOC When You Sell Your Home Yes, you can sell a house that has a HELOC on it. The outstanding HELOC balance is paid off from sale proceeds at closing. The title company handles the payoff directly — it sends funds to your HELOC lender, your primary mortgage lender, and any other lienholders before disbursing the remaining proceeds to you. **If your sale price doesn't cover both the mortgage and HELOC,** you owe the remaining balance. This is why tracking your [home's current value](https://www.opendoor.com/articles/how-to-determine-home-value) matters — it tells you whether a sale will fully satisfy all liens. **How the payoff works with Opendoor.** When you accept an Opendoor Cash Offer, the title company pays off all existing liens — including HELOCs — from your sale proceeds. You see your final net number before you commit because Opendoor displays every deduction (mortgage payoff, HELOC payoff, service fee, closing costs) in your [checkout summary](https://www.opendoor.com/articles/how-much-can-you-expect-to-make-when-you-sell-your-home). No surprises at the closing table. ## When a HELOC Is — and Isn't — the Right Move **A HELOC fits if you:** - Plan to stay in your home for five or more years — enough time for the credit line to justify its closing costs - Have a specific, ongoing use for revolving funds (phased renovations, tuition payments over several semesters) - Can absorb monthly payment increases of 20–25% if the prime rate rises 1–2 percentage points - Have a stable income and a DTI ratio below 43% **A HELOC is not the right move if you:** - Need predictable, fixed monthly payments — a fixed-rate home equity loan is better - Plan to sell within two to three years — closing costs and rate volatility erode the benefit - Want to avoid putting your home at risk as collateral for a second lien - Are accessing equity primarily to fund a move — selling converts equity to cash without new debt **Opendoor isn't the right fit if you want to stay in your home and tap equity incrementally.** A HELOC or home equity loan serves that need — and this article exists to help you evaluate that option honestly. But if you're leaning toward selling, an Opendoor Cash Offer lets you convert all your equity to cash in as few as 14 days because Opendoor buys directly with company funds — no buyer financing contingencies, no appraisal delays, and no second lien on your home. See [how Opendoor calculates the value of your home](https://www.opendoor.com/articles/how-opendoor-calculates-the-value-of-your-home) using 100+ comparable sales in your ZIP code. ## Top Questions People Ask About Home Equity Lines of Credit ### Is a HELOC a good idea right now? That depends on why you need the funds and how long you plan to stay in your home. In 2026, [variable HELOC rates](https://www.bankrate.com/home-equity/what-is-heloc/) remain elevated relative to the low-rate environment of 2020–2021, which means monthly costs are higher and rate-increase risk is real. If you're staying long-term and funding renovations that increase [your home's value](https://www.opendoor.com/home-value-estimator), a HELOC can still make financial sense. If you're considering a move within two to three years, selling and converting equity to cash avoids the closing costs and variable-rate exposure entirely. ### Is it better to refinance or get a HELOC? A cash-out refinance replaces your entire mortgage at a new rate, while a HELOC adds a second lien and leaves your primary mortgage untouched. If your current mortgage rate is below today's market rates, a HELOC preserves that rate advantage. If today's rates are lower than your existing rate, a cash-out refinance can lower your overall cost while giving you cash. A third option — selling your home — gives you full equity access with no new debt. Compare all three using the table in the "HELOC vs Cash-Out Refinance vs Selling" section above. ### What is the difference between a home equity loan and a HELOC? A [home equity loan provides a lump sum at a fixed interest rate](https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-home-equity-loan-and-a-home-equity-line-of-credit-heloc-en-247/); a HELOC provides revolving access at a variable rate. Home equity loans have repayment terms of 5–30 years with predictable monthly payments. HELOCs have a 10-year draw period (interest-only) followed by a 20-year repayment period. Both use your home as collateral. ### How is the borrowing limit on a HELOC calculated? Lenders use a combined loan-to-value (CLTV) formula: appraised home value × 85% − remaining mortgage balance = your HELOC limit. The 85% cap is the industry standard ([Bankrate](https://www.bankrate.com/home-equity/what-is-heloc/)), though credit unions including Navy Federal offer CLTV caps of 90%, and certain portfolio lenders cap at 80%. Your credit score and DTI ratio also affect the approved limit. ### What is the monthly payment on a $50,000 HELOC? At 8.5% variable APR, interest-only payments during the draw period are $354 per month. During the repayment period (principal + interest over 20 years), payments rise to approximately $434 per month. A 2-percentage-point rate increase would push the interest-only payment to $437 per month. ### What happens to a HELOC when you sell your home? The HELOC balance is paid from sale proceeds at closing, handled by the title company alongside your primary mortgage payoff. You receive the remaining proceeds after all liens are satisfied. If the sale price doesn't cover the combined balances, you owe the difference. ### Can you sell a house that has a HELOC on it? Yes. The HELOC is a lien on the property, and the lien is satisfied from sale proceeds at closing. The title company coordinates payoff directly with your lender. This applies whether you sell through a traditional listing, FSBO, or a cash offer from a company like Opendoor. ### Will HELOC rates go down in 2026? HELOC rates track the prime rate, which follows the [federal funds rate](https://www.bankofamerica.com/mortgage/learn/what-is-a-home-equity-line-of-credit/). As the Federal Reserve adjusts rates through 2026, HELOC rates move in step. No one can guarantee a rate direction, but watching Fed meeting announcements gives you the clearest signal of where HELOC rates are heading. ### When does a HELOC make sense vs selling for cash? A HELOC makes sense when you want to stay in your home, need revolving access to funds, and have a specific use (renovations, tuition). Selling makes sense when you're ready to move, want to eliminate all mortgage debt, and prefer full equity conversion to cash. Understanding [current real estate commission rules](https://www.opendoor.com/articles/who-pays-real-estate-agent-commission) helps you compare the net cost of selling to the ongoing cost of a HELOC. **Who Opendoor is not for:** Homeowners weighing a HELOC are typically looking to tap equity without selling the home. Opendoor isn't for borrowers who want to keep the property and only need cash — a HELOC, home equity loan, or cash-out refinance through a lender like Bankrate-rated partners is the right fit. Consider listing with Opendoor's cash-offer pathway only if you've decided to sell the home outright and want a closing-date certainty trade-off. If you're not sure, comparing the lender's HELOC against your home's current cash offer side-by-side is a useful sanity check before committing to either. **Frequently asked questions** --- *Originally published at [https://www.opendoor.com/articles/what-is-a-home-equity-line-of-credit](https://www.opendoor.com/articles/what-is-a-home-equity-line-of-credit)*