Best HELOC Rates Of January 2025

A HELOC is a type of second mortgage that allows homeowners to tap into their equity. With a HELOC, you have access to a revolving line of credit that you can borrow from on a repeated basis—similar to a credit card.

Loan Amounts

How much you can borrow with a HELOC depends on the lender, your credit score and your income, as well as your:

• Home equity: This is the difference between what you owe on your first mortgage and your home’s current appraised value.
• CLTV ratio: To calculate this, add the balances of your primary mortgage and any other loans that use your home as collateral (such as another home equity loan) to the amount you’d like to borrow with a HELOC. You’ll then divide this number by your home’s appraised value.

Depending on the lender, you can typically borrow up to 80% or 85% (even 90%, in some cases) of your CLTV ratio with a HELOC.

Draw and Repayment Periods

The life of a HELOC is split into two periods—the draw period and the repayment period. During the draw period—which typically ranges from 10 to 15 years—you can borrow on an as-needed basis up to your credit limit. During this time, you’ll generally only have to make interest payments, though you have the option to make payments toward your principal balance.

After this, you’ll enter the repayment period—which usually lasts up to 20 years—and can no longer borrow. Instead, you’ll begin paying back what you’ve borrowed, including both principal and interest.

Collateral

Like other mortgages, a HELOC is secured using your home as collateral. This reduces the lender’s risk, which in turn can translate to lower interest rates compared to other financing options like credit cards and personal loans.

However, this also means you risk losing your home if you can’t make your payments.