in our free newsletter.

Thousands benefit from our email every week.

What is a HELOC?

A home equity line of credit, or HELOC, is a revolving credit line that you can borrow from on demand.

A lender will approve you for a specific amount of money — determined by the value of your home and your credit score — for a specific amount of time. You may be able to borrow up to 85% of the value of your home.

During the initial "draw period," you can borrow money or pay off your balance whenever you want, and you'll only pay interest on the amount you're actually borrowing.

If you're still borrowing money at the end of the draw period, you enter the repayment period. You won't be able to borrow more money, and you'll begin paying down the amount you’ve used, plus interest.

Your lender will use a benchmark interest rate — such as the prime rate — to determine the interest rate of your HELOC. Because it's backed by your home, expect that rate to be a lot lower than other borrowing options, like credit cards.

The right homeowners insurance policy protects you, your loved ones and your home.

Find the coverage you need at the most competitive rate in your area. Compare quotes from over 200 insurance companies with SmartFinancial.

Compare Now

Is a HELOC right for you?

What’s great about a HELOC is that you only borrow what you need, and you can do so at any point during the draw period. There’s no obligation to use that money if you don’t need it, but it can provide you with fast cash in a pinch.

Your interest payments may even be tax deductible depending on how you use the money. While lenders won’t restrict your options, choosing to put your funds toward improving your home can get you some tax benefits.

Keep in mind, because a HELOC comes with a variable interest rate, your monthly payments might increase if the prime rate goes up. Since your property is used as collateral on the loan, you could put your home at risk if you can't keep up with the payments.

The cost of a HELOC depends largely on the lender. Some HELOCs come without fees or closing costs, while others may have high fees and a balloon payment toward the end.

The trick to finding the best deal is knowing where to look.

More: HELOC vs. home equity loan

Tap your home equity with a HELOC

A HELOC is a great option for freeing up some cash, but doing the research to find a great rate and lender can be a slog.

Luckily, there's a comparison tool to help you find the best lender for your HELOC, so you don’t have to spend time shopping around.

Take a minute to compare rates and gain access to your home equity.

Get peace-of-mind on your home insurance

Homeowners insurance buys you peace of mind. But are you sure you’re not paying too much for home insurance?

SmartFinancial compares quotes from over 200 insurance companies to check for discounts and help you find lower rates in your area.

Use SmartFinancial right now and stop overpaying for home insurance.

What to Read Next

Disclaimer

The content provided on MoneyWise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.