Home Equity Line of Credit

The 65% and 80% rules

A standalone revolving HELOC is limited to 65% of your home's value. A combined mortgage-plus-HELOC product can reach 80% in total, but the revolving portion within it still cannot exceed 65%. The remainder must sit in an amortizing mortgage segment.

That structure is what makes a readvanceable mortgage attractive: as you pay down the mortgage segment, the credit limit on the HELOC segment grows automatically, without a new application.

HELOC or a lump-sum refinance

A HELOC wins when the amount is uncertain or the need is staged: a renovation in phases, a business with seasonal swings, or a reserve you hope never to touch. You pay interest only on the drawn balance.

A refinance wins when you know the amount and will hold it for years. The rate is lower than a HELOC's prime-plus pricing, and the amortizing payment forces the balance down instead of leaving it to drift.

• HELOC: variable, interest-only minimum, reusable, higher rate
• Refinance: fixed or variable, amortizing, one-time, lower rate

Qualifying, and the discipline it needs

Lenders qualify a HELOC on your ability to carry it at a stress-tested rate on the full limit, not the balance you intend to use. A large unused limit therefore consumes borrowing capacity on every future application, including a car loan.

The minimum payment is interest only, which means a balance can sit there for years without shrinking. Setting your own principal repayment schedule when you draw is what separates a HELOC that builds wealth from one that quietly becomes permanent debt.

Common uses that work

Bridging between buying and selling, funding a rental property down payment, smoothing self-employment income, and holding an emergency fund that costs nothing until used are all sound reasons to have one in place.

Set it up while your income is strong and your equity is high. Trying to arrange one after a job change or a market dip is much harder, and a HELOC is cheapest to establish when you do not urgently need it.