Buhata
Login Start for Free

Home › Life Terms

Debt and credit

HELOC

A home equity line of credit: a revolving line secured by your home that you can draw on, repay and draw on again during a set draw period.

What It Means

A HELOC, short for home equityHome equityThe part of your home you own outright: its current value minus everything you still owe on loans secured by it. See more line of credit, lets you borrow against the equity in your home as you need it, up to a credit limitCredit limitThe most your card company lets you owe on a credit card or line of credit at one time. See more. The Consumer Financial Protection Bureau (CFPB) describes two phases: a draw period, when you can borrow, repay and borrow again, and a repayment period, when borrowing stops and you pay down what you owe. Its rate is typically variable, tied to a public index such as the prime rate, and your home secures the debt.

Try It: Compare the Payment Before and After the Draw Ends

Example numbers to start. Enter what you've drawn and the rates to compare the two phases of the same line.

Draw period, interest only$354.17a month, and the balance doesn't shrink
Repayment period$433.91a month until it's paid off

When the draw period ends, the payment rises by $79.74 a month, 23% more.

A variable rate can change in either period, so try a higher repayment rate.

How People Say It

  • "We took out a HELOC for the roof and only drew what we needed."
  • "Our draw period ends next year and the payment's going up."
  • "Is the HELOC rate tied to prime?"

The Breakdown

Worked example. A family draws $50,000 on a HELOC at an example variable rateVariable interest rateAn interest rate that can rise or fall over the life of a loan or card because it's tied to an index, such as the prime rate, plus a set margin. See more of 8.5%, making interestInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more-only payments during the draw period, then repays over 20 years:

PhaseMonthly payment
Draw period, interest only$354.17
Repayment over 20 years at 8.5%$433.91
Repayment over 1010,000 stepsA popular daily step goal that began as the name of a 1960s Japanese pedometer; later studies find health benefits begin well below it. See more years at 8.5%$619.93
Repayment over 20 years if the rate rises to 10.5%$499.19

What the result means. Interest-only payments keep the bill low, but the $50,000 is still owed the day the draw period ends. From then on every payment has to cover principal too, so the payment rises even if the rate stays put. A shorter repayment period or a higher rate pushes it up further. The federal banking agencies have issued guidance to lenders specifically about borrowers reaching the end of the draw period.

How it differs from a home equity loanHome equity loanA loan secured by your home's equity that pays out one amount at the start and is usually repaid at a fixed rate; often called a second mortgage. See more. A HELOC is a line you draw on over time, usually at a variable rate. A home equity loan pays out a set amount at the start, typically at a fixed rateFixed interest rateAn interest rate that's set when you borrow and stays the same for the life of the loan, so the monthly payment doesn't change. See more.

Good to Know

When your main home secures the line, the Truth in Lending Act gives you three business days after signing to cancel for any reason, as the FTC and CFPB explain; the notice must be in writing. On taxes, IRS Publication 936 for 2025 says interest on a home equity line is deductible only to the extent the money was used to buy, build or substantially improve the home that secures it, and only if you itemize; ask a tax professional about your own return. Your home backs the line, so missed payments put the house at risk.

FAQ

What happens when the HELOC draw period ends?

You can no longer borrow, and you start repaying the balance, often over 10 or 20 years according to the CFPB. If you were paying interest only, the payment rises because it now includes principal.

Is HELOC interest tax deductible?

Sometimes. IRS Publication 936 for 2025 says the interest is deductible only when the money buys, builds or substantially improves the home securing the line, and you must itemize deductionsItemized deductionA specific expense the IRS lets you subtract on Schedule A, such as mortgage interest, state and local taxes, charity or large medical bills, instead of the standard deduction. See more.

What's the difference between a HELOC and a home equity loan?

A HELOC is a line of credit you draw on as needed, typically at a variable rate. A home equity loan, sometimes called a second mortgage, is one amount paid out at the start, typically at a fixed rate.

Do It in Buhata

Bills, Countdown

With Plus, add the HELOC payment to Bills, and put the day the draw period ends in Countdown so the new payment doesn't arrive as a surprise.

Open Buhata

Related Terms and Categories

  • Home equity

    The part of your home you own outright: its current value minus everything you still owe on loans secured by it.

  • Home equity loan

    A loan secured by your home's equity that pays out one amount at the start and is usually repaid at a fixed rate; often called a second mortgage.

  • Cash-out refinance

    Replacing your mortgage with a new, larger one and taking the difference, minus closing costs, in cash.

  • Variable interest rate

    An interest rate that can rise or fall over the life of a loan or card because it's tied to an index, such as the prime rate, plus a set margin.

  • Revolving credit

    Credit you can borrow, repay and borrow again up to a set limit, such as a credit card or a line of credit.

  • Debt consolidation

    Rolling several debts into one new loan or card balance, usually to get a single payment and, ideally, a lower interest rate.

Debt and credit

Sources

Consumer Financial Protection Bureau, "What is a home equity line of credit (HELOC)?"; CFPB, "What you should know about Home Equity Lines of Credit (HELOC)"; Board of Governors of the Federal Reserve System, "Interagency Guidance on Home Equity Lines of Credit Nearing Their End-of-Draw Periods"; Federal Trade Commission, "Home Equity Loans and Home Equity Lines of Credit"; CFPB, "How long do I have to rescind? When does the right of rescission start?"; Internal Revenue Service, "Publication 936 (2025), Home Mortgage Interest Deduction"

Last updated .