Home Equity
HELOC: How It Works, What It Costs and What to Ask
Published September 24, 2026 · Last updated September 28, 2026
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The short answer
A HELOC is a home equity line of credit. A lender approves you for a credit limit based on the value you've built up in your home. You borrow what you need, when you need it, and pay interest only on what you borrow. It works a lot like a credit card, except your home backs the line, so you could lose it if you don't repay.
Most HELOCs have two stages. First comes the draw period, often about 10 years, when you can borrow and your payment may be small. Then comes the repayment period, often 10 to 20 years, when you can no longer borrow and you start paying back the balance. Rates are usually adjustable, so your payment can change.
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HELOC snapshot
- How you get the money
- A credit line you draw from as you need it
- Draw period
- Often about 10 years
- Repayment period
- Often 10 to 20 years
- Rate type
- Usually adjustable, so your payment can change
- Right to cancel
- 3 business days after signing on your main home
We do not list rates or credit limits. Those come only from a lender, based on your situation.
Not a quote, offer or approval. Your price comes from the provider. Last updated September 2026.
What affects your HELOC cost
Price range
We don't list rates, payments or credit limits on this page. Those come only from a lender, based on your situation and its current program rules. Compare offers from more than one lender. Not a quote, offer or approval. AssistQuote is not a lender.
What lenders usually look at
- Your equity. That's your home's value minus what you still owe. Lenders want you to keep some equity after the line is open.
- Your credit.
- Your income and other debts. Lenders check how much of your pay already goes to debt.
- Your home's value. Most lenders order an appraisal or a value check.
How the rate is built
Most HELOC rates move with an index, plus a set amount the lender adds called the margin. When the index moves, your rate moves. Ask for the index, the margin, and the highest rate the contract allows, which is called the lifetime cap. Some lenders let you lock part of the balance at a fixed rate.
Costs besides interest
Ask about application and appraisal fees, annual fees, inactivity fees, a minimum draw at closing, and any fee for closing the line early. Ask for all of them in writing.
Two things that catch people
- Payment shock. During the draw period your payment may cover interest only. When the repayment period starts, principal is added and the payment can jump a lot.
- The rate can move. Most HELOCs are adjustable. A payment you can afford today can cost more later.
The catch: a HELOC can lower the rate on other balances, but it turns debt that wasn't tied to your home into debt that is. If the cards fill back up, you'll owe more than before, with your home on the line.
HELOC vs. home equity loan vs. cash-out refinance
- HELOC: borrow as you need, up to a limit. Usually an adjustable rate. You keep your current mortgage. Good fit when spending happens over time, like a long project.
- Home equity loan: one lump sum, often at a fixed rate. You keep your current mortgage. Good fit for one known cost.
- Cash-out refinance: you replace your whole mortgage with a bigger one and take the difference in cash. That changes the rate on your entire balance.
If you have a low rate on your current mortgage, a HELOC or home equity loan lets you keep it.
If your home is in Texas
Texas has its own home equity rules in its state constitution. On a main home, the total of all loans tied to the home is usually limited to 80 percent of its value, and a Texas home equity line has extra limits on how much you can draw at once and how often. Ask a Texas lender to walk you through those rules before you plan around a number.
What to ask before you choose
- "What index and margin set my rate, and what's the lifetime cap?"
- "How long is the draw period, and what will my payment be after it ends?" Try the HELOC calculator to see the jump for yourself.
- "Can I lock part of the balance at a fixed rate, and what does that cost?"
- "What are all the fees, including annual, inactivity and early closing fees?"
- "Is there a minimum draw, now or later?"
- "Can the lender freeze or reduce my line, and when?"
Know your right to cancel
For a HELOC on your main home, federal law gives you until midnight of the third business day after closing to cancel. The clock starts once you've signed, received your Truth in Lending disclosure, and received two copies of your notice of the right to cancel. Saturdays count as business days. Sundays and federal holidays don't.
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