Is a HELOC a Good Idea?

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<p><span>Bennett Leckrone is the editorial manager and an analyst for Lower. He specializes in making complicated mortgage topics accessible for consumers. That includes both in-depth product guides and in-depth analysis on what economic moves mean for homebuyers and refinancers.</span></p>
<p><span>He was previously a business reporter with a focus on higher education and fintech at BestColleges. In that role, he reported on the development of fintech and AI curriculum, as well as the rapidly changing nature of finance education. He also wrote guides to help business students navigate AI and online education.</span></p>
<p><span>He also reported on state politics at Maryland Matters, with a focus on how policy affected people and businesses. He holds a bachelor of science in journalism degree from Ohio University.</span></p>
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REVIEWER: (SizeLimitingPyMap: {bio=<p><span>Neel Patel is a mortgage industry professional with more than a decade of hands-on experience across loan origination, customer experience, sales operations, and strategy. He has worked at every stage of the mortgage lifecycle, from advising individual borrowers to leading teams of loan officers. </span></p>
<p><span>As an expert reviewer, Neel evaluates mortgage and personal finance content for accuracy, clarity, and real-world applicability. He specializes in ensuring information reflects how lending actually works in practice so consumers can make confident, informed decisions.</span></p>, hs_child_table_id=0, hs_created_at=1770998587713, hs_created_by_user_id=85123122, hs_deleted_at=0, hs_id=207521716567, hs_initial_published_at=1770998795717, hs_is_edited=false, hs_name=Neel Patel, hs_path=neel-patel, hs_published_at=1770998795717, hs_updated_at=1770998733653, hs_updated_by_user_id=85123122, name_first_last=Neel Patel, profile_picture={url=https://19577492.fs1.hubspotusercontent-na1.net/hubfs/19577492/Neel%20Patel%20Cropped%204.jpg, width=1638, height=2048, altText=Neel Patel, fileId=207528140173, type=image}, tags=[{id=2, name=reviewer, label=Reviewer, isHubspotDefined=false, labelTranslations={}, type=option, createdAt=1770043811028, createdByUserId=83124684, updatedAt=1770043811028, updatedByUserId=83124684, order=1}]})

Written by Bennett Leckrone

Reviewed by Neel Patel

Our Editorial Standards

A home equity line of credit (HELOC) is a powerful tool to tap into home equity, but it isn’t for everyone.

A HELOC’s flexibility often comes with tradeoffs like variable interest rates and potential payment shock during the repayment period when both principal and interest payments are required.

Whether a HELOC is the right fit for you will ultimately depend on your financial goals, risk tolerance, and repayment plan.

Understanding a HELOC

A HELOC is a revolving loan secured by your home. It lets you use equity you’ve built up in your home to borrow funds on an ongoing basis, similar to a credit card secured by your home.

This table breaks down common features of a HELOC:

Feature	How it works
Collateral	Your home secures the line of credit
Interest rate	Usually variable, meaning it can change over the life of the loan, though some lenders offer fixed-rate options
Draw period	An initial three to 10 year period where you can access funds up to your limit. Payments might be interest only during this time, although you can pay down more to be able to access previously used amounts again.
Repayment period	A period when principal and interest payments are required. This happens after the draw period ends and usually lasts 10 to 20 years. Usually, no new borrowing is allowed.
Limits	HELOC limits are usually based on a combined loan to value (CLTV) ratio, which is used by weighing your existing mortgages against your home’s value. Most lenders allow 80% to 85% CLTV, but some, including Lower, allow up to 95%.

HELOCs are often most useful for staged or unpredictable expenses, like home renovations completed in phases or large costs spread over time.

Advantages of a HELOC

For the right borrower, a HELOC can be a smart and cost-effective way to tap home equity.

Some of the advantages of a HELOC include:

Pay interest only on what you use: You’re not charged on the full approved amount.
Lower rates than unsecured debt: HELOC rates are typically lower than credit cards and personal loans because they’re secured by your home.
Flexible access to funds:. Ideal for multi-phase projects or expenses that don’t have a fixed total cost upfront.
Potential tax benefits: Interest may be tax-deductible if the funds are used for qualifying home improvements.
Optional fixed-rate locks: Some lenders allow you to convert part of your balance to a fixed rate for payment stability.

HELOC vs. other common borrowing options

Loan type	Typical rate	Flexibility	Best for
HELOC	Lower, usually variable	High	Ongoing or phased expenses
Credit card	High, variable	High	Short-term or small purchases
Personal loan	Medium–high, fixed	Low	One-time, predictable costs

HELOCs are often used for phased expenses like education costs and home renovations, but are also commonly used to consolidate other debts into a lower interest rate loan.

Drawbacks of a HELOC

A HELOC isn’t risk free, and its flexibility comes with higher uncertainty than other equity-based loans.

Some common HELOC risks include:

Variable interest rates: Most HELOCs adjust with market rates, which means your payment can increase unexpectedly.
Your home is on the line: Missed payments can lead to foreclosure.
Payment shock after the draw period: Once repayment begins, monthly payments can rise sharply because you’ll be required to pay both principal and interest.
Fees and costs. Closing costs, annual fees, or inactivity fees can add up.

When a HELOC Makes Sense

A HELOC can be a good idea when it’s used strategically and responsibly. It’s best when you’ve got a specific, time-limited purpose for it like renovations or a tuition bill. It can also be useful for ongoing debt consolidation that occurs in stages rather than all at once.

It’s also important to understand the risk of shifting rates over the life of the loan. Since most HELOCs have a variable rate, your payments might rise or fall over the life of the loan, so you’ll need to be able to tolerate those fluctuations.

You can reduce risks with a HELOC by budgeting for higher payments to prepare for when the draw period ends, or even making principal payments during the draw period to avoid payment shock once the repayment period begins.

You can also look for fixed-rate HELOC options. While they’re generally less common than variable rates, a fixed-rate HELOC keeps payments much more predictable. You should also confirm whether your lender charges any prepayment or inactivity fees, and what their rate cap policies are to get an idea of how much risk you’re taking on with your HELOC.

HELOC vs. Other Home Equity Options

HELOCs aren’t the only way to tap your home’s value.

Option	How it works	Best for
HELOC	Revolving credit, variable or hybrid rate	Flexible, phased expenses
Home equity loan	Lump sum, fixed rate	One-time, predictable costs
Cash-out refinance	New, larger mortgage that lets you take a portion of your equity as cash	Replacing an older, higher-rate mortgage
Personal loan	Unsecured, fixed, may have higher rates than home equity loans	Smaller amounts, no home risk

If you don’t want a lump sum and prefer flexibility, a HELOC often makes more sense than a home equity loan.

The Bottom Line

A HELOC can be a smart financial tool, but only when used intentionally. If you value flexibility, have a defined goal, and understand the risks, a HELOC may help you unlock your home’s equity efficiently. If not, safer alternatives like a fixed-rate home equity loan may offer more predictability.

Frequently Asked Questions About HELOCs

Is a HELOC right for me?

A HELOC is often a good choice if you need flexible access to funds for a specific purpose and have a clear repayment plan, especially for home improvements or major expenses where costs may change.

What are the main advantages of a HELOC?

HELOCs offer flexible access to cash, and generally have lower interest rates than home loans.

What are the biggest risks of a HELOC?

HELOC risks include variable rates that can raise payments and the risk of foreclosure if you default.

When does a HELOC make sense?

A HELOC makes sense when you need phased access to cash, have sufficient equity, and can manage rate and payment changes responsibly.

Table of Contents

Is a HELOC a Good Idea?

Key Takeaways

Tap into more home equity than almost any other lender.