How a HELOC Works: Borrowing Limits, Draw and Repayment

Published October 12, 2026

Free tool: Home Equity & HELOC Calculator→

A home equity line of credit (HELOC) lets you borrow against the value you've built up in your home, often at a lower rate than credit cards or personal loans. But it's secured by your house, its rate usually changes with the market, and the payment can jump when the draw period ends. This guide explains how much you can borrow and how the payments work, using the free Home Equity & HELOC Calculator.

How much you can borrow

Lenders limit your total borrowing to a share of your home's value, called the combined loan-to-value (CLTV) limit, often 80% to 90%:

Available credit = home value × CLTV limit − mortgage balance

Example: a $400,000 home with a $250,000 mortgage has $150,000 of equity (37.5%). With an 85% limit, you could borrow up to $400,000 × 85% − $250,000 = $90,000. Borrowing $50,000 would bring your combined loan-to-value to 75%.

How HELOC payments work

A HELOC has two phases:

1. The draw period, often 10 years, when you can borrow as needed. Many HELOCs require only interest payments during this time.
2. The repayment period, often 20 years, when you can't borrow more and repay principal and interest.

Example: borrowing $50,000 at 8.5%, with a 10-year draw period and a 20-year repayment period:

• Interest only during the draw: $354.17 a month for 10 years, then $433.91 for 20 years, a jump of about $80. Total interest: $96,639.
• Principal and interest from the start: $384.46 a month for all 30 years. Total interest: $88,404.

Paying principal from day one avoids the payment jump and saves about $8,235 of interest, assuming the rate stays the same.

Variable rates

Most HELOCs have a variable rate tied to the prime rate, so your payment can change even during the draw period. On a $50,000 balance, every 1-point rise adds about $42 a month to an interest-only payment. Some lenders let you lock part of the balance at a fixed rate.

HELOC vs home equity loan vs cash-out refinance

• HELOC: a reusable credit line with a variable rate; it suits costs spread over time, like a renovation.
• Home equity loan: a lump sum with a fixed rate and payment; it suits a one-time cost.
• Cash-out refinance: replaces your mortgage with a bigger one; it can make sense if the new rate is no higher than your current one. See When Does Refinancing Your Mortgage Make Sense?

Whichever you choose, your home secures the debt, and missing payments can lead to foreclosure, so borrow for things of lasting value rather than everyday spending. In the US, the interest is tax-deductible only in limited cases, such as when the money is used to buy, build or substantially improve the home; check the current IRS rules.

How to use the Home Equity & HELOC Calculator

1. Open the Home Equity & HELOC Calculator.
2. Enter your home's value, your mortgage balance and the lender's limit (80%, 85% or 90% of the home's value).
3. Enter the amount to borrow and the interest rate.
4. Set the draw and repayment periods, and choose whether you'll pay interest only during the draw period.
5. Read the results: how much you could borrow, your equity, the payments during the draw and repayment periods and the total interest, with a breakdown of your home's value, a chart of the payment over time and a year-by-year schedule.

The calculator assumes you draw the full amount at the start and the rate stays the same.

Frequently asked questions

How much can I borrow with a HELOC?

Typically up to 80% to 90% of your home's value, minus your mortgage balance. On a $400,000 home with a $250,000 mortgage and an 85% limit, that's $90,000.

What happens when the HELOC draw period ends?

You stop borrowing and start repaying principal and interest. On $50,000 at 8.5%, an interest-only payment of $354.17 rises to $433.91.

Is a HELOC a good idea?

It can be a low-cost way to pay for home improvements or replace high-interest debt, but your home is the collateral and the rate can rise. Make sure you could afford the repayment-period payment at a higher rate.